EU Energy Ministers Agree on Gas Price Cap

Improve the News Foundation -

Facts

  • EU energy ministers on Monday announced that they've agreed on an energy price cap of €180 ($191) per megawatt hour if it exceeds that level for more than three consecutive business days on the bloc's benchmark Dutch Title Transfer Facility (TTF) energy exchange.
  • Germany, which previously raised concerns over a cap's impact on attracting suppliers in a competitive global market, voted in favor of the cap. If implemented, it will take effect on Feb. 15 and won't initially apply to private over-the-counter trades, only trades on the exchange.
  • The cap would also prevent trades from occurring on the front-month to front-year TTF contracts at a price higher than €35 ($37) megawatts per hour above a reference price assessment on liquified natural gas (LNG).
  • While Russia expressed its opposition to the move, calling it "unacceptable," the industry minister of the Czech Republic — which currently holds the EU presidency — stressed that it's "not a fixed cap but a dynamic one" where prices could potentially breach the limit if the LNG market goes above a certain level.
  • Alongside the 35 euro price reference aimed at retaining market competition, concessions to gain Germany's vote also included a change to a legal text on permits for new energy grids aimed at expediting renewable energy deployment. However, the Netherlands and Austria still abstained, and Hungary voted against it.
  • The news comes after the European Commission's originally proposed a cap of €275 ($292) per megawatt hour and anything €58 higher than the LNG reference price for two weeks.

Sources: CNN, Reuters, Al Jazeera, CNBC, Guardian, and Associated Press.

Narratives

  • Establishment-critical narrative, as provided by OilPrice. Given that gas markets are global and don't fit neatly into individual countries or blocs, this price cap is unlikely to have a positive impact on the energy crisis. While exchanges other than the TTF engage in competition as demand soars over the winter, Europeans will be left in the dark, most likely figuratively and literally.
  • Pro-establishment narrative, as provided by Reuters. While some have understandably voiced concerns over how this cap may impact the market, the agreed-upon proposal already includes multiple safeguards, including suspending the cap if the EU faces a gas shortage. The cap is also only a year in length and will also undergo another review by regulators to ensure its benefits outweigh its risks.