Gas Price Cap Division Forces EU to Delay Plans

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Mutiny from member states over a proposed wholesale gas price cap has forced the EU to put off formal approval of a package of measures aimed at tackling the continent’s energy crisis.

EU Energy Commissioner Kadri Simson insisted political agreement was reached on five key issues, including plans for joint gas purchases and agreements to share gas between members states as well as streamlined permitting for renewables.

But those measures were not officially passed as formal votes were delayed to the December meeting as price cap supporters sought to increase their leverage over the negotiations.

Putting a brave face on the divisions over the cap, Czech Energy Minister Jozef Sikela told a press conference in Brussels that he expected to see consensus reached on the issue at a special meeting scheduled for mid-December — “there is too much at stake” he insisted.

Politicians across Europe have been under pressure to take action as a sharp fall in pipeline gas imports from Russia drove gas and electricity prices to sky-high levels this year, inflicting financial pain on vulnerable businesses and consumers.

Ahead of the meeting, the European Commission submitted a proposal to cap the price of the front-month Dutch TTF gas futures contract — a widely used reference price — at €275 per megawatt hour ($83 per million Btu).

But the cap would only be activated if prices for month-ahead contracts on the Dutch gas benchmark TTF futures market exceeded the €275 level for two consecutive weeks and if the price was €58 higher than the global price for LNG for 10 days.

Price Cap or a Prank?

Simson insisted the cap remained a proposal and “was never going to be agreed today.”

But going into the meeting it was already clear how far apart member states remain.

Politicians from Poland and Italy have said it is too high to be effective and would not even have been activated during summer’s record-high gas prices.

“The gas price cap … currently does not satisfy any single country. It is a kind of joke for us,” Polish Energy Minister Krzysztof Tchorzewski told journalists. “It is already minus 10 in Poland so we don’t want to keep on discussing about solidarity and permitting on renewables … it’s winter now so we need to discuss the gas price cap.”

States such as Germany and the Netherlands are against any cap that threatens Europe’s security of gas supply.

“The proposal which is on the table now regarding the market mechanism is flawed,” Dutch Energy Minister Rob Jetten told journalists. There’s a lot of risk for damaging ... security of supply and also for the stability of the financial markets.”

Emergency Measures Held Hostage

Simson pushed the idea of a “political” agreement on the package of changes as significant for EU energy policy, even if their formal enactment had been delayed.

On joint gas purchases the EU said it had put a process in place “that will allow us to pool our demand through the EU Energy Platform and buy 13.5 billion cubic meters of gas together next year in time to refill our storage,” she said.

The EU’s Agency for the Cooperation of Energy Regulators will work on developing a new EU LNG benchmark by the end of March. “The current most popular benchmark, [Dutch] TTF, no longer reflects the situation on the EU gas market and a complementary instrument is needed.”

Simson also said agreement was reached on developing “circuit breakers” for intra-day derivatives trading, to avoid volatility and “ease liquidity stress for energy utilities.”

Finally, she said states had agreed to “reinforce … EU energy solidarity to make sure that in the event of an emergency no member state will be left alone.”

In practice, an EU diplomat told Energy Intelligence that solidarity was a sore point.

EU states should have agreed bilateral deals with border states six years ago under law 1938 to allow a secure supply of gas across the Union, but to date only three bilateral deals are actually finalized.

Gas Supply, LNG Supply, Gas Prices, Electricity Prices, LNG Prices, Policy and Regulation
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