EU energy ministers reached an agreement to cap gas prices in the bloc when they reached 180 euros per megawatt-hour for three days despite concerns that such intervention would fail to calm markets and could threaten Europe’s gas supplies.
The cap, which is supposed to take effect on February 15, is the latest attempt to rein in soaring energy prices in the bloc and help consumers after Russia cut most of its gas exports to Europe.
“We have solved the last piece of the energy puzzle,” said Josef Sekela, the Czech energy minister whose country holds the rotating presidency of the European Union. “It took some time to agree on something that I think is a balanced compromise with the pain shared equally between the two camps.”
Germany, which had vehemently opposed the cap over fears it would cause valuable gas supplies from Europe to be rerouted to higher-paying regions, eventually agreed after offering guarantees to speed up the removal of the cap if there was a risk of gas shortages. The Netherlands and Austria, which both opposed the cap, abstained in the final vote and Hungary voted against it.
“Sometimes it’s about damage control, and we’ve achieved a lot of that if you look at the nitty-gritty,” said one senior German official. Sekela said Berlin also included a commitment to speed up separate legislation designed to streamline approval procedures for renewable energy projects.
Hungarian Foreign Minister Peter Szyjjarto called the cap a “very bad proposition” but said Budapest had achieved a “small achievement” that meant it did not need to consult the European Commission if it needed to amend long-term gas contracts with Russia. measurement result.
Several market operators, including ICE, the operator of the European benchmark TTF gas contract, have warned that the cap risks increasing volatility as traders will circumvent it with unregulated deals.
“We have consistently expressed concerns about the destabilizing effect that a fund of trust fund price cap would have on the market . . . we are reviewing the details of the announced market correction mechanism, technical feasibility, impact on financial stability, and whether ICE can continue to operate in fair markets.” and a regulator for trust funds from the Netherlands in accordance with our European regulatory obligations.” an agreement.
Dutch energy regulator AFM said it “believes that the healthy 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 in all European trading centers for one-month, three-month and one-year supplies. Prices must also be €35/MWh above the three-day average global LNG prices for it to be operational. Over-the-counter deals may be included at a later stage subject to review by Brussels.
After the announcement, gas futures contracts a month ago on the Netherlands-based index fell about 8 percent at 107 euros/MWh, well below its peak of more than 340 euros/MWh in August, but still much higher. From 69 EUR/MWh at the end of 2021.
Monday’s meeting is seen as the last chance for ministers to reach agreement on one of the most divisive EU energy policy provisions of the year.
Rob Gettin, Dutch Minister for Climate and Energy, said that despite the additional safeguards, the measure was still “probably unsafe”.
“I remain concerned about the major turmoil in the European energy market, about the financial implications, and most of all, I worry about the security of European supplies,” he said.
The Kremlin described the measure as a “violation of the market pricing process” and that Russia would “carefully weigh the pros and cons” while preparing its response to the EU’s move.
The cap of 180€/MWh is almost 100€/MWh less than the first proposal for the commission last month, when it proposed a mechanism to limit rates when it reached 275€/MWh for 10 consecutive days. Several ministers called the proposal a “joke” because it would not have been triggered even when prices in the bloc reached record levels in August.
The agreement to cap gas prices allows legislation to allow renewable energy projects to take effect, and another proposal for joint gas purchases at the bloc level, after several countries threatened to vote against it unless a cap on gas prices was agreed.
Additional reporting by Henri Foy in Brussels. Guy Chazanne in Berlin; Anastasia Stozhny in Riga; and Philip Stafford, Tom Wilson and Adam Samson in London
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