EU energy ministers have reached an agreement to cap gas prices in the bloc when they hit €180 per megawatt hour for three days despite fears that such an intervention could cause greater volatility in the market.
The cap, which should come into force on February 15, is the latest attempt to curb soaring energy prices and help consumers after Russia reduced much of its gas exports to Europe.
Germany, which had been strongly opposed to the cap due to fears that it would cause valuable gas supplies to be redirected from Europe to higher paying regions, eventually agreed after safeguards were introduced to make it quicker to remove the cap if there was a risk of gas shortages. The Netherlands and Austria, which had also been against the cap, abstained in the final vote and Hungary voted against.
Claude Turmes, Luxembourg’s energy minister, said the deal “showed unity and we avoided the trap of division set by [Russian president Vladimir] Putin”.
Several market operators, including ICE, the operator of the benchmark European TTF gas contract, have warned that a cap risks an increase in volatility as traders would circumvent it through unregulated over-the-counter trades.
The Dutch energy regulator AFM said that it took “note of the decision” to introduce a cap but “believes the proper functioning of the gas futures market benefits most from measures that support efficient price formation and stable liquidity”.
“We will continue to pay close attention to the gas futures market and remain in dialogue with the industry and relevant authorities,” it said.
The cap will initially apply to gas contracts traded on all European trading hubs for supplies between one month and a year ahead. Prices must also be €35/MWh above an average of global liquefied natural gas prices in order to be triggered. Over-the-counter deals may be included at a later stage subject to review by Brussels.
After the announcement, month-ahead gas futures on the Netherlands-based benchmark were down about 8 per cent at €107/MWh, far 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 the ministers to find an agreement on one of the EU’s most divisive pieces of energy policy this year.
German chancellor Olaf Scholz, who has been sceptical about a gas price cap, signalled after a summit of EU leaders last Thursday that Berlin could be open to a deal. “On the side of the conference . . . there were some proposals that sounded like a good solution,” he said.
ICE warned last week that it might pull operations out of the EU if a cap was introduced.
The €180/MWh ceiling is almost €100/MWh less than the European Commission first proposed last month when it suggested a mechanism to limit prices when they reached €275/MWh for 10 consecutive days. That proposal was branded “a joke” by several ministers as it would not have been activated even when prices in the bloc hit record highs in August.
The gas price cap deal allows two other pieces of legislation designed to speed up the approval of renewables projects and for joint purchasing of gas to take effect after several countries threatened to vote against them unless a limit on gas prices was agreed.
Additional reporting by Henry Foy in Brussels and Philip Stafford and Adam Samson in London