A “dynamic” European cap for the price of gas

Purpose of the operation: to set up, as of January 1, 2023, an emergency mechanism which would automatically come into action if wholesale gas prices shoot up, with the aim of avoiding excessive volatility and peaks disproportionate prices, such as the market experienced this summer.

Member states – Belgium in particular, which has been advocating for a cap for months – have been eagerly awaiting this proposal, ahead of a meeting of energy ministers on Thursday.

Too high the ceiling?

The Commission is putting forward figures: the mechanism will be activated as soon as the price of the TTF contract (named after the main European gas exchange) for one month exceeds €275 per megawatt hour for two weeks, and that TTF prices exceed €58 the reference prices for liquefied natural gas (LNG) for ten consecutive days within these two weeks. Therefore, orders exceeding this limit will not be accepted. Other transactions, such as daily or shorter-term transactions, remain authorized.

The proposed ceiling appears at first glance to be very high. Energy Commissioner Kadri Simson could not answer the question of whether the mechanism would have been activated if it had already existed this summer.

Countries such as Germany, the Netherlands and Denmark have long held back the idea of ​​a cap, for fear that gas suppliers will turn away from Europe. The Commission itself had been reluctant. The executive has therefore provided for suspension clauses, which can be activated for example if it appears that too many gas suppliers are looking for outlets outside Europe once the mechanism has been activated. “By working with a dynamic ceiling, we avoid this problem”, according to a Commission representative.

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