The European Commission Cautions Against A Natural Gas Price Cap

The European Commission has issued a warning about the potential negative impacts of a price cap on natural gas used for power generation, saying this could encourage higher consumption and exports of subsidized electricity.

This is according to a Reuters report that cited a document from the latest meeting of EU energy ministers to discuss ways of reining in the energy crisis.

Per the document, if the EU approves a price cap on the natural gas it uses for power generation, this could lead to an increase in gas consumption of some 9 billion cubic meters. Yet a rise in gas consumption is the last thing the EU needs right now, as it tries to get people to actually reduce their consumption of energy.

A price cap on natural gas used for power generation has already been introduced in Spain and Portugal but France has suggested the cap be implemented across the EU. Meanwhile, Bloomberg has reported that the Commission warned the EU would need to get Switzerland and the UK on board with the cap before proceeding.

The two are big energy importers from the EU and a potential price cap would affect them, too, by supplying EU-subsidized electricity to non-members.

Besides the idea of a specific gas price cap for power generation, the EU is also discussing a broad cap on the price of all importer gas, which could prove even more challenging.

In any case, as Bloomberg notes, discussions on the cap for power generation will take at least a few weeks. Before member states settle on the cap, they need to agree on a regulation that the Commission suggested earlier this month and that would allow direct market intervention from the EU as it tries to rein in the energy chaos.

Any decision on gas price caps will likely take more than a month, if a decision is reached at all – capping gas prices would incur subsidy costs for some countries with a lot of gas-powered generation capacity, such as Germany, and benefit others that import gas-produced electricity, such as the author of the idea, France.

By Irina Slav for Oilprice.com

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