December 20, 2022

EU members in last-minute push to compromise on gas price cap

categories : oil and gas

BRUSSELS: EU energy ministers sought a breakthrough Monday on plans to cap natural gas prices, weighing the danger of allowing prices to soar against the fear of driving exporters elsewhere. Some entering the meeting in Brussels said an accord appeared to be within reach, with discussions revolving around what price level a cap should kick in. The issue is urgent, with Europe facing tight energy supplies as it endures winter, because Russia has cut gas deliveries in retaliation for EU sanctions over its invasion of Ukraine.

An agreement on a gas price cap would unlock other measures that are already green-lit, such as joint gas purchases and a new gas price benchmark. Those are contingent on a price-cap accord being reached. The European Commission had proposed a ceiling of 275 euros per megawatt hour, considered too high by many EU countries.

It attached conditions that countries saw as unattainable, including requiring the price of gas to go above the threshold for at least two weeks, and the price of liquified natural gas (LNG) to go above 58 euros for 10 days within that same two-week period. Those tight hoops to jump through reflected reluctance from Germany and the Netherlands over a price cap, which they feared could send LNG to more lucrative markets in Asia.

Ministers said they were now looking at a much lower threshold. “I think 188 (euros per megawatt hour) — that will give the right signals to markets,” Greek Energy Minister Konstantinos Skrekas said. “The pressure to reach an agreement today is high, and I’m positive that we can achieve a compromise,” said Estonia’s economy minister, Riina Sikkut.

According to a draft text, a cap triggered if front-month contract prices on the Dutch TTF, Europe’s main benchmark for natural gas prices, exceed 188 euros ($200) per megawatt hour for three days. Runacher said France would be “comfortable” with a range of “160 to 200 euros and we feel that this price [range] converges with that of the presidency.” On Monday morning, ministers referred to the measure as a “gas market correction mechanism” rather than a cap. Belgian Energy Minister Tinne van der Straeten said the draft text refers to the proposal under this name.

The move is intended to shield consumers from the sharply higher prices that have hit the bloc following Russia’s invasion of Ukraine. European natural gas prices reached historic levels of around 350 euros per megawatt hour in August, when traders were concerned about the bloc’s unity in fighting the energy crisis.

The European Central Bank warned earlier this month that capping natural gas prices could create instability in financial markets. “The more safeguards, the more safety nets there are, the more tolerant we can all be with the number, but it would be irresponsible to just set a number and say this is strict and we don’t do anything else,” German Economy Minister Robert Habeck said. The central bank is not the only institution warning about the potential market ramifications of a price limit. Market operator ICE (Intercontinental Exchange) – the operator of a key natural-gas market in Europe – has threatened to remove trading from the bloc if the EU goes ahead with the measure, according to the Wall Street Journal.

“Germany has asked for strong safeguards with regards to security of supply, but also stability on both the energy and financial markets. These are concerns that we all share. It’s not a concern of Germany alone, it’s a concern of all 27 of us,” said Belgium’s van der Straeten. Miriam Dalli, Malta’s energy minister, said it was “crunch time for reaching a compromise” that makes sense for all member states and can “calm the markets” while ensuring security of gas supply. She said talks had progressed a long way from the European Commission’s original proposal of a 275 euros per megawatt hour cap, which several member states argued was too high and unlikely to be triggered.

Greek Energy Minister Konstantinos Skrekas said countries had a “clear mandate from our leaders to come out with a solution to the cap today.” “We wouldn’t be so insistent if we were not convinced that this is the best solution for European citizens,” he said, adding that any cap between 150 and 200 eur/MWh would be effective.

Asked about the suitability of a price ceiling at 188 eur/MWh, he said such a level would “give the right signals to the market.” Estonian Finance Minister Riina Sikkut also said she was “positive” a compromise could be reached but added that it was difficult to say exactly what it would be. She expressed confidence that “good news” would emerge by Monday evening.

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