Energy Commissioner of the Estonian Federation Kadri Simson (AFP)
The European Commission proposed today, Tuesday, to impose Gas price limit For one year, starting January 1, 2023, at a rate of 275 euros per megawatt hour, according to Estonian Federation Energy Commissioner Kadri Simson. And what about the details of this ceiling and its feasibility?
It will be discussed Energy ministers of the member states of the bloc The 27 state proposals the day after Thursday.
The Commission hopes that the ceiling will help Member States to brake Energy prices For homes and businesses after hitting record highs this year after Russia’s invasion of Ukraine, compounding death toll inflation and increased pressure Cost of living.
Do all EU countries agree on a cap on gas prices?
The idea of a maximum price (cap) has led to constant disagreements between EU member states.
Belgium, Greece, Italy and Poland are among the most vocal in calling for a cap on gas prices, while Germany, the bloc’s largest economy, has led the way in opposing it.
The reason is that Germany saw the idea of a cap as making it difficult to attract much-needed gas supplies and reducing the incentive to cut gas consumption when countries need to conserve fuel and replace Russian shipments.
How does the proposed gas price cap work?
The European Commission, the bloc’s executive, has proposed applying the limit one month ahead of the price of derivatives on the Dutch gas exchange TTF, which serves as a benchmark for prices in Europe.
This will not affect ‘OTC trading’, which the Commission says is a safety valve for major deliveries, while unlikely to capture a significant share of the trade.
On Thursday, ministers will discuss the cap formula and cap level, as well as the size of the gap between the TTF price and the global LNG price.
What is the opinion of the gas market setting a maximum price in Europe?
The Confederation of European Energy Exchanges (Europics) has written to the Commission saying the plan could pose a significant risk to financial and supply stability in European energy markets.
The union believed the cap could lead utilities to stop buying and selling, in what’s called a hedge, for gas production and consumption, and lead to a move to more off-exchange trading without be capped, which may increase “counterparty risks”.
Europex also said the cap could make it difficult for utilities to attract LNG cargoes.
Some traders said this could reduce the liquidity of next month’s trades and lead to increased trading of other products such as the ‘Next Day Contract’.
In this context, Commissioner Simpson said that the mechanism has been carefully designed to be effective, without jeopardizing the security of supply and the functioning of the Union’s energy markets and financial stability.
Will the gas price cap reduce its costs?
When Simpson announced the proposal, he said there was no silver bullet to bring prices down.
The Dutch TTF contract for the following month is trading at around 120 euros per megawatt-hour, but this year has reached an intraday high of more than 340 euros per megawatt-hour.
The €275 level is a higher ceiling than some had expected, with an EU diplomat previously suggesting a range between €150 and €180 per megahour.
The new gas price standard
While the price cap is meant to be a temporary solution, the Commission wants an alternative and more permanent price standard for gas in Europe and has asked EU energy regulators to launch one by 31 March 2023.
Historically, the TTF gas price has been used as a benchmark for LNG deliveries to Europe.
But a significant drop in Russian gas supplies this year has made the price very volatile, often more expensive than LNG prices elsewhere in the world.
Brussels says a new indicator is needed because the FTT is driven by pipeline supplies and therefore no longer represents a market with more LNG.
Some industry sources have suggested that the industry should independently develop a new standard and its success will depend on whether the gas industry uses it or not.
And the maximum price of Russian gas?
The commission proposed capping the price of Russian gas in September but abandoned the idea after resistance from central and eastern European countries, worried that Moscow would retaliate by cutting the gas it still sends.
Europe relied on Russia for almost 40% of its gas needs before Moscow invaded Ukraine, but that share dropped to around 8% when Russia cut off supplies to Europe.
Given the drop, some EU diplomats said a cap would do little to lower European gas prices and would be a geopolitical move to cut Moscow’s revenues.
(Reuters, The New Arab)
