Europe Agrees to Cap Gas Prices 

Europe Agrees to Cap Gas Prices

After months of discussions, energy ministers from across the EU have reached an agreement on issuing a cap on gas prices to curb rising inflation caused by soaring energy prices. The measures came into being after Moscow reduced its gas supplies to Europe. 

On Monday, the European Union finally reached an agreement on a planned cap for the price of gas. For months energy ministers from across the Bloc have argued over how to handle soaring energy prices that has been affecting their respective states since Russia cut its supplies to Europe, following sanctions imposed on Moscow by the EU in relation to its invasion of Ukraine. 

The cap will kick in when prices on Europe’s main gas exchange, the Dutch Title Transfer Facility (TTF), crosses £157 per megawatt-hour for three consecutive days. This is far lower than the £239 megawatt-hour ceiling proposed by the European Commission, which was largely criticised by countries that favoured a lower price cap. As energy prices rose, Belgium, Spain and Poland were leading the charge to introduce a cap below £174. 

Fearing producers sending their gas supplies to other countries due to Europe’s decision to impose a price ceiling, member states agreed to add a mechanism that would only trigger the £157 cap if TTF price is trading £30 higher than the international reference price for liquified natural gas (LNG) for three consecutive working days. 

While the Netherlands and Austria abstained from the vote, Hungary voted against the planned price cap. Germany, who initially was against the deal, voted in favour after the EU changed its legal texts on grid permits to speed up deployment of renewable energy initiatives. Berlin is Europe’s largest consumer of liquified natural gas. 

Europe Agrees to Cap Gas Prices

“This is not a fixed cap, but rather a dynamic one. This is a temporary, effective and realistic mechanism which will protect citizens and businesses from the excessive gas prices we have seen this summer. This proposal was never really purely about the cap level; it was always about making sure that the mechanism would not jeopardise the security of supply or stability of the financial markets of the European Union,” tweeted Jozef Sikela, Deputy Prime Minister of Croatia. 

The price cap is the latest in a raft of measures agreed upon by the European Union this year in order to solve the energy crisis sparked by Russia’s invasion of Ukraine, which led to energy prices shooting across the bloc, fueling one of the highest levels of inflation seen in decades. Other measures adopted by the EU included a price cap of £50 per barrel on seabourne Russian oil. In August, energy prices hit a record high of £300 per megawatt-hour after Moscow reduced its gas supplies to Europe. 

Despite European lawmakers reaching an agreement on Monday, many analysts and traders have raised concerns regarding the price cap, saying that the mechanism could backfire and lead to energy prices rising and worsening current supply shortages. 

“Gas traders would likely liquidate short positions and stop selling futures if they fear the break could be activated imminently, for fear of the resulting losses,” said analysts at Eurasia Group in a note published on Monday. 

Following the EU’s announcement, a spokesperson for the Intercontinental Exchange, which operates the TTF, said that they had consistently voiced their concerns about the destabilising effect such a measure will have on the energy market. The exchange is currently reviewing details of the new proposal and considering whether it can operate “fair and orderly markets” for TTF from the Netherlands. However, Intercontinental Exchange has stated that the TTF will continue to operate as usual for the foreseeable future. 

Considering the concerns made by financial analysts and traders, Deputy PM Sikela said that the price cap mechanism could be automatically deactivated in several circumstances, like when energy consumption across Europe is high, if trades on the TTF declines, or if quarterly imports of LNG drops. 

The proposal still requires a “qualified majority” in order to be implemented, meaning at least 15 countries representing 65% of the Bloc’s population must agree to the terms. 

Also Read Government Extends Alcohol Duty to Help UK’s Hospitality Industry

Backer B
Written by

Backer B

Blockchain Expert

Fascinated by Blockchain technology and its evolution, Backer. B studies the space up close. Get on board for accurate data and analysis on Crypto, Web3, Metaverse and everything on-chain.

Similar Posts

Leave a Reply

Your email address will not be published. Required fields are marked *