EU Ministers Agree On Gas Price Cap Of €180 MWh

After initially hitting a dead-end amid deep divisions, EU ministers have finally reached an agreement to implement a  gas price cap of €180/MWh, far lower than the €275/MWh trigger originally suggested by the European Commission.

Pro-cap countries including Poland, Belgium and Greece had dismissed the original cap proposal as too high, arguing that it needs to be below €200/MWh if it is to tackle the high gas prices that the continent has grappled with this year. 

Interestingly, Germany has also voted to support the price cap despite having reservations that the price cap will negatively impact Europe's ability to attract gas supplies in tight and price-competitive global markets.

Under the current proposal, the EU price cap would not fall below €188/MWh, even in the event that the LNG reference price falls to far lower levels. However, the EU gas price cap would move with the LNG reference price if it increased to higher levels, while remaining €35/MWh above the LNG price. This system is designed to ensure the bloc can bid above market prices in order to attract gas in tight markets. 

Once triggered, the cap will prevent trades being done on the front-month to front-year TTF contracts at a price higher than €35/MWh above a reference price that comprises existing LNG price assessments.

Previously, the EC planned to tie benchmark European gas futures prices to the price of liquefied natural gas on the spot market. The “safety price ceiling” would be triggered automatically, when “the front-month TTF derivative settlement price exceeds €275 for two weeks” and, second, when “TTF prices are €58 higher than the LNG reference price for 10 consecutive trading days within the two weeks.” 

Both moves caused trepidation amongst gas traders. “Even a short intervention would have severe, unintended and irreversible consequences in harming market confidence that the value of gas is known and transparent,” said the European Federation of Energy Traders. 

By Alex Kimani for Oilprice.com

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