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European Union scrambles to agree gas price cap amid energy crisis Hot news

A worker walks past gas pipes that connect a Floating Storage and Regasification Unit ship with the main land in Wilhelmshaven, northern Germany on December 17, 2022. EU energy ministers are wrangling over a proposed price cap on gas.

Michael Sohn | Afp | Getty Images

European Union nations are engaged in crunch talks to cap gas prices, with energy ministers Monday seeming optimistic about a deal following two months of tough negotiations.

“There will be difficult discussions, but I am confident in our ability to reach a collective agreement,” French Energy Minister Agnes Pannier Runacher said.

A draft text seen by Reuters would see 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 [eur/MWh], 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.

Opinion has been divided on how high the cap should be, and whether the market intervention is a risk to financial stability in the euro area. On Dec. 5, the EU implemented a full ban on Russian seaborne crude oil imports to the region and will follow up with similar measures targeting Moscow’s other oil products in early February.

Europe's gas price cap will not result in lower prices for consumers, says RBC's Helima Croft

Germany, the Netherlands and Austria have warned that the gas price cap could divert supplies away from the EU and called for conditions such as an automatic suspension of the cap in certain circumstances.

Germany’s position

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.

Compromise within reach?

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