Budapest Post

Cum Deo pro Patria et Libertate
Budapest, Europe and world news

EU agrees on gas price cap, skeptics denounce it as an ‘illusion’

EU agrees on gas price cap, skeptics denounce it as an ‘illusion’

The scheme is hedged with so many restrictions that it may not have much of an impact.

EU countries finally struck a gas price cap deal Monday after months of fraught divisions over a key aspect of the bloc’s response to the energy crisis — but the final settlement may end up pleasing no one.

Energy ministers meeting in Brussels for their final summit of the year reached political agreement on a so-called “market correction mechanism.” Under the plan, which is set to come into force on February 15 and last for one year, trades on Europe’s gas exchanges will be capped at €180 per megawatt-hour, if that price level is reached for three working days and European wholesale gas prices are, for the same length of time, €35 above the global price of liquefied natural gas (LNG).

The complex policy tool — which is set well below the €275 trigger price originally proposed by the European Commission, and applies to month-ahead, three-month and one-year contracts — was approved by EU countries with a qualified majority; Hungary opposed, while Austria and the Netherlands abstained.

Germany — which had long opposed price cap proposals pushed by an alliance of Southern and Eastern countries, as well as Belgium — was able to support the scheme, but only with significant “safeguards” which address Berlin's concerns that intervening in the European gas market could drive international LNG cargoes away from the Continent just as Europe (and Germany in particular) is trying to wean itself off its former addiction to Russian gas.

The policy was designed to avoid the kinds of price spikes seen in the summer, when prices at Europe's main trading hub, the TTF, briefly hit €345 per MWh. Those prices have now cooled considerably to €115 per MWh but remain four to five times higher than what they averaged before Russia invaded Ukraine and threw Europe's gas supply into chaos — piling pressure on domestic consumers and businesses, particularly in energy-intensive sectors like chemicals, steel and glass. If ever triggered the cap would, in theory, apply for at least 20 working days.

Italian Prime Minister Giorgia Meloni called it a "little big victory," while Polish Prime Minister Mateusz Morawiecki said it "spells the end of Russia and Gazprom's ability to manipulate the market." But Dutch Energy Minister Rob Jetten told POLITICO he was “still worried” about the measure's impact.

The focus should be on lowering gas prices for European consumers while also guaranteeing security of gas supply, he said. “I’m not completely convinced this market correction mechanism is beneficial for both those topics.”

In a sign of how divisive the discussion still remains, a senior diplomat from one pro-cap country said the measure “is not enough and only a temporary emergency measure” saying wholesale gas prices are still four times higher than normal and a broader market reform was necessary.

“This gives the impression that we can afford €180 per megawatt-hour, which we cannot,” they said.


Market manipulation


There are still hurdles in the way of the policy ever coming into force

The European Commission has, throughout, shared the concerns of the anti-price cap countries about the plan's possible impact on gas supply and market stability.

Energy Commissioner Kadri Simson emphasized in Monday’s post-summit press conference that the Commission “stands ready to suspend, ex-ante, the activation of the mechanism” if a forthcoming report by the EU markets watchdog ESMA and the energy regulator ACER — along with analysis by the European Central Bank — “shows that the risks outweigh the benefits.” The bank has already spoken out about possible risks to market stability.

Luxembourg's energy minister Claude Turmes and Estonian Energy minister Riina Sikkut


The pro-price cap countries — including Belgium, Italy, Spain and Greece — have put the need (both material and political) to lower energy bills for citizens and businesses front and center in their arguments for a price cap.

“This is about our energy future,” said Belgium’s Energy Minister Tinne van der Straeten, speaking ahead of Monday’s meeting. “It’s about energy security. It’s about how we have affordable prices and avoid deindustrialization.”

Precisely how the complex mechanism that countries have ended up with will achieve this goal remains to be seen. Even if it is eventually triggered, it could be suspended if it is seen to drive up gas demand, reduce LNG imports, affect market stability, reduce the volume of gas traded at the TTF, or drive gas trading away from Europe.

“There are so many safeguards that it is difficult to understand fully how it will play out,” said Simone Tagliapietra, a senior fellow at the Bruegel think tank. The whole debate had become a “totem” for many countries, he said — very visible, invested with meaning by onlookers, but ultimately fairly pointless.

“The gas price cap is perceived in several member states as a silver bullet,” he added, but it will not “magically solve all our problems — and it would be a really big mistake to think so.”

Germany and the Netherlands — two heavily gas-dependent countries and both cautious of major market intervention — spearheaded opposition to the various forms of gas price cap that were proposed.

Timm Kehler, CEO of the German gas industry group Zukunft Gas, called the whole enterprise a “political illusion” — one that will not “survive the reality check” now that it is actually EU policy. “In a market economy, prices are determined by supply and demand — and not by political decrees,” he said.

Although the safeguards are supposed to protect the market from turmoil, just the existence of the mechanism may have a negative impact on Europe’s ability to lure international gas cargoes, said Katja Yafimava, gas specialist and senior research fellow at the Oxford Institute for Energy Studies. It sends “a signal to all suppliers of gas to Europe that the EU is willing — in principle and in practice — to tinker with the market if politically expedient ... [that] may bear on suppliers’ future commercial decisions.”

Europe’s cold snap this December has seen gas storage levels reduced from near-full to 84 percent. That’s still a fairly comfortable level for this time of year, but how the price cap might interact with the global gas market next spring and summer, when European countries will once again be racing to fill their underground gas storage facilities, will be a question for energy ministers when they meet again in 2023: a new year, but the same energy crisis.

AI Disclaimer: An advanced artificial intelligence (AI) system generated the content of this page on its own. This innovative technology conducts extensive research from a variety of reliable sources, performs rigorous fact-checking and verification, cleans up and balances biased or manipulated content, and presents a minimal factual summary that is just enough yet essential for you to function as an informed and educated citizen. Please keep in mind, however, that this system is an evolving technology, and as a result, the article may contain accidental inaccuracies or errors. We urge you to help us improve our site by reporting any inaccuracies you find using the "Contact Us" link at the bottom of this page. Your helpful feedback helps us improve our system and deliver more precise content. When you find an article of interest here, please look for the full and extensive coverage of this topic in traditional news sources, as they are written by professional journalists that we try to support, not replace. We appreciate your understanding and assistance.
Newsletter

Related Articles

0:00
0:00
Close
Putin Celebrates ‘Unprecedentedly High’ Ties with China as Gazprom Seals Power of Siberia-2 Deal
China Unveils New Weapons in Grand Military Parade as Xi Hosts Putin and Kim
Rapper Cardi B Cleared of Liability in Los Angeles Civil Assault Trial
Google Avoids Break-Up in U.S. Antitrust Case as Stocks Rise
Couple celebrates 80th wedding anniversary at assisted living facility in Lancaster
Information Warfare in the Age of AI: How Language Models Become Targets and Tools
The White House on LinkedIn Has Changed Their Profile Picture to Donald Trump
"Insulted the Prophet Muhammad": Woman Burned Alive by Angry Mob in Niger State, Nigeria
Trump Responds to Death Rumors – Announces 'Missile City'
Druzhba Pipeline Incident Sparks Geopolitical Tensions
Cost of Opposition Leader Péter Magyar's Economic Plan Revealed
Germany in Turmoil: Ukrainian Teenage Girl Pushed to Death by Illegal Iraqi Migrant
United Krack down on human rights: Graham Linehan Arrested at Heathrow Over Three X Posts, Hospitalised, Released on Bail with Posting Ban
Asian and Middle Eastern Investors Avoid US Markets
Ray Dalio Warns of US Shift to Autocracy
Eurozone Inflation Rises to 2.1% in August
Russia and China Sign New Gas Pipeline Deal
Von der Leyen's Plane Hit by Suspected Russian GPS Interference in an Incident Believed to Be Caused by Russia or by Pro-Peace or by Anti-Corruption European Activists
China's Robotics Industry Fuels Export Surge
Suntory Chairman Resigns After Police Probe
Gold Price Hits New All-Time Record
UK Fintechs Explore Buying US Banks
Greece Suspends 5% of Schools as Birth Rate Drops
Apollo to Launch $5 Billion Sports Investment Vehicle
Bolsonaro Trial Nears Close Amid US-Brazil Tension
European Banks Push for Lower Cross-Border Barriers
Poland's Offshore Wind Sector Attracts Investors
Budapest Central European Fashion Week Kicks Off
U.S. Celebrates Labor Day
Hungarian National Team Captain Scores Epic Goal
EU is getting aggressive: Four AfD Candidates Die Unexpectedly Ahead of North Rhine-Westphalia Local Elections
Japanese Customer Sways from VW to BYD after “Unbelievable” Test Drive amid Dealership Expansion
Nestlé Removes CEO Laurent Freixe Following Undisclosed Relationship with Subordinate
Pickles are the latest craze among Generation Z in the United States.
Giuliani Seriously Injured in Accident – Trump to Award Him the Presidential Medal of Freedom
Deadline Day Delivers Record £125m Isak Move and Donnarumma to City
Nvidia Reveals: Two Mystery Customers Account for About 40% of Revenue
Woody Allen: "I Would Be Happy to Direct Trump Again in a Film"
Lula and Putin Hold Strategic BRICS Discussions Ahead of Trump–Putin Summit
White House Eyes Budapest for Peace Talks
Cave Diving Beneath the Streets of Budapest
Another American Restaurant Chain Opens in Budapest
Hungarian Opposition Politician Supports Ukrainian Commander
Opposition Leader Threatens Media Outlets
American Airlines Adds New Flights to Budapest
F1 Hungarian Grand Prix Wraps Up
WhatsApp is rolling out a feature that looks a lot like Telegram.
U.S. Trade Representative says Washington still negotiating trade deals after court rules tariffs illegal
Von der Leyen says Europe drawing up 'precise' plans to send troops to Ukraine
Kremlin accuses Europe of hindering Trump’s peace efforts in Ukraine
×