EU energy ministers have reached an agreement to cap gas prices in the bloc when they hit €180 per megawatt hour for three days despite fears that such an intervention will fail to calm markets and could threaten Europe’s gas supplies.
The cap, which should come into force on February 15, is the latest attempt to curb soaring energy prices in the bloc and help consumers after Russia reduced much of its gas exports to Europe.
“We have solved the last piece of the energy puzzle,” said Jozef Sikela, the Czech energy minister whose country holds the rotating EU presidency. “It took some time to agree on something that I think is a balanced compromise with equally shared pain between two camps.”
Germany, which had been strongly opposed to the cap because of fears that it would cause valuable gas supplies to be redirected from Europe to higher paying regions, eventually agreed after safeguards were introduced to make it quicker to remove the limit if there was a risk of gas shortages. The Netherlands and Austria, which had also been against the cap, abstained in the final vote and Hungary voted against.
“Sometimes it’s all about damage control, and we achieved quite a lot of that if you look at the fine print,” said one senior German official. Berlin also secured a commitment to speed up separate legislation designed to ease procedures for approving renewable power projects, Sikela said.
Hungary’s foreign minister Peter Szijjarto described the cap as a “very bad proposal” but said that Budapest had secured a “small achievement” that meant it did not need to consult the European Commission if it needed to modify its long-term gas contracts with Russia as a result of the measure.
Several market operators, including ICE, the operator of the benchmark European TTF gas contract, have warned that a cap risks an increase in volatility as traders would circumvent it through unregulated over-the-counter trades.
“We have consistently voiced our concerns about the destabilising impact a TTF price cap will have on the market . . . We are reviewing the details of the announced market correction mechanism, its technical feasibility, the impact on financial stability, and whether ICE can continue to operate fair and orderly markets for TTF from the Netherlands as per our European regulatory obligations,” it said following Monday’s agreement.
The Dutch energy regulator AFM said that it “believes the proper functioning of the gas futures market benefits most from measures that support efficient price formation and stable liquidity”.
The cap will initially apply to gas contracts traded on all European trading hubs for supplies one month, three months and a year ahead. Prices must also be €35/MWh above an average of global liquefied natural gas prices for three days in order to be triggered. Over-the-counter deals may be included at a later stage subject to review by Brussels.
After the announcement, month-ahead gas futures on the Netherlands-based benchmark were down about 8 per cent at €107/MWh, far below a high of more than €340/MWh in August but still well above the €69/MWh at the end of 2021.
Monday’s meeting was seen as the last chance for ministers to find an agreement on one of the EU’s most divisive pieces of energy policy this year.
Rob Jetten, the Netherlands’ minister for climate and energy, said that despite the added safeguards the measure remained “potentially unsafe”.
“I remain worried about major disruptions on the European energy market, about the financial implications and, most of all, I am worried about European security of supply,” he said.
The Kremlin described the measure as “a violation of the market pricing process” and that Russia would “thoroughly weigh the pros and cons” while preparing its response to the EU move.
The €180/MWh ceiling is almost €100/MWh less than the commission’s first proposal last month, when it suggested a mechanism to limit prices when they reached €275/MWh for 10 consecutive days. That proposal was branded “a joke” by several ministers as it would not have been activated even when prices in the bloc hit record highs in August.
The gas price cap deal allows legislation on permitting renewable energy projects and another proposal for bloc-wide joint purchases of gas to take effect after several countries threatened to vote against them unless a limit on gas prices was agreed.
Additional reporting by Henry Foy in Brussels; Guy Chazan in Berlin; Anastasia Stognei in Riga; and Philip Stafford, Tom Wilson and Adam Samson in London
