The European Union has unveiled a long-awaited natural gas price cap plan to protect consumers from soaring energy prices in the wake of Russia's invasion of Ukraine, capping prices for the entire bloc at 275 euros (~$272) per megawatt hour, Reuters reports.
The price cap proposal is for month-ahead derivatives on the Dutch natural gas benchmark TTF and would be in place for two weeks.
The plan is being presented as a failsafe that would not be set in motion unless natural gas prices reached above specific levels for 10 straight days during that two-week period, the Wall Street Journal said, citing the European Commission.
"This is not a silver bullet that will bring gas prices down," WSJ quoted EU Energy Commissioner Kadri Simson as saying. "But it provides a powerful tool that we can use when we need it."
Last week, EU officials warned that once a gas price cap was initiated, it would be "immediately" revoked in the event that there were any negative economic consequences for the bloc, Euronews reported.
That statement reflected mounting fears that a market intervention of this nature would result in the diversion of cargoes of liquefied natural gas (LNG) to Asia.
The potential for LNG cargoes to be diverted was illustrated in recent reports about rising numbers of LNG vessels waiting on the coast of Europe for prices to rise before offloading.
"We have put a lot of thought into what can go wrong. If something goes wrong, we will pull the plug," Euronews cited a senior EU official, speaking on the condition of anonymity. "We will push the button."
The European Commission's price cap proposal, unveiled Tuesday by the European Union, still requires the approval of all member countries in order to be implemented. Further discussions will take place on Thursday, according to WSJ.
By Charles Kennedy for Oilprice.com
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Comments
Because of shortages, there is a huge competition for whatever LNG is in the market and a real possibility of LNG prices shooting up further.
The fact that China has rushed to sign a 27-year LNG deal with Qatar is a clear indication of the competition for the remaining LNG in the market before additional new capacity comes online from 2026 onwards.
Despite the cap, the hapless EU won’t escape paying even more staggering prices for LNG supplies with the United States milking it for every particle of LNG it provides.
Dr Mamdouh G Salameh
International Oil Economist
Global Energy Expert