EU energy ministers reach agreement on gas price cap

EU energy ministers reached an agreement to cap gas prices in the bloc when they hit €180 per megawatt-hour for three days despite fears such intervention would fail to calm markets and could threaten Europe’s gas supply.

The cap, which is due to come into effect on February 15, is the latest attempt to rein in soaring energy prices in the bloc and help consumers after Russia cut much of its gas exports to the 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 a while to agree on something that I think is a balanced compromise with pain equally shared between both sides.”

Germany, which had strongly opposed the cap for fear that it would lead to the diversion of precious gas supplies from Europe to better paid regions, finally agreed, after the introduction of safeguards, to accelerate the removal of the cap if there was a risk of gas shortages. The Netherlands and Austria, which had also spoken against the cap, abstained in the final vote and Hungary voted against.

“Sometimes it’s all about damage control, and we’ve largely achieved that if you look at the fine print,” said a senior German official. Berlin also secured a commitment to speed up separate legislation aimed at easing approval procedures for renewable energy projects, Sikela said.

Hungarian Foreign Minister Peter Szijjarto called the cap a ‘very bad proposal’ but said Budapest had gotten a ‘small achievement’ which meant it did not need to consult the European Commission if it needed to modify its long-term gas contracts with Russia. following the measurement.

Several market operators, including ICE, the operator of Europe’s benchmark TTF gas contract, have warned that a cap risks increasing volatility as traders circumvent it with unregulated over-the-counter transactions.

“We have consistently expressed our concerns about the destabilizing 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 the Netherlands TTF in accordance with our European regulatory obligations,” he said on Monday.

Dutch energy regulator AFM said it “believes that 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 negotiated on all European hubs for deliveries one month, three months and one year in advance. Prices must also be €35/MWh above an average of world liquefied natural gas prices for three days to be triggered. OTC transactions may be included at a later stage subject to review by Brussels.

Following the announcement, one-month gas futures on the Dutch-based benchmark fell around 8% to €107/MWh, well below a high of over 340 €/MWh in August, but still well above €69/MWh at the end of 2021.

Monday’s meeting was seen as the last chance for ministers to strike a deal on one of the most contentious elements of EU energy policy this year.

Rob Jetten, Dutch climate and energy minister, said that despite the additional safeguards the measure remained “potentially dangerous”.

“I remain worried about major disruptions in the European energy market, the financial implications and, above 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 “weigh the pros and cons carefully” while preparing its response to the EU decision.

The €180/MWh cap is nearly €100/MWh lower than the commission’s first proposal last month, when it suggested a mechanism to cap prices when they hit €275/MWh for 10 consecutive days. The proposal has been called a “joke” by several ministers as it would not have been activated even when prices in the bloc hit record highs in August.

Gas price cap deal allows renewable energy project licensing legislation and another proposed joint bloc-wide gas purchases to come into force after several countries threatened to vote against them unless a cap on gas prices is 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

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