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EU energy ministers seal deal on gas price cap

EU ministers agree cap at €180 per megawatt hour

The EU agreed to cap gas prices amid the ongoing energy crisis

Mon Dec 19 2022 - 14:29

European nations reached a deal to cap natural gas prices at €180, ending months of political wrangling over whether to intervene in an energy crisis that has risked pushing the region into a recession.

The so-called gas market correction mechanism, designed to prevent extreme price swings, will apply from February 15th. It’s significantly lower than an earlier proposal by the European Commission, which wouldn’t have prevented the spikes that the region saw earlier this year as Russia curbed gas supplies in the wake of its war in Ukraine.

The new cap will only take effect if the price difference with global liquefied natural gas prices is greater than €35. Prices would have to stay above both ceilings for three days to trigger the mechanism.

Officials had been seeking an agreement before the arrival of severe winter weather drives up gas demand for heating and electricity. Surging energy costs have contributed to double-digit inflation across the region. With Europe hit by a cold snap this month, governments have come under increasing pressure from voters to act or risk a backlash.

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While benchmark European gas prices have declined in recent months to around €100 per megawatt-hour, they remain well above average for this time of year. Policy makers and analysts also expect high prices to persist next year, as they seek to alternatives to Russian supplies.

The deal resolves what had been one of the EU’s biggest disputes over energy policy since the crisis began. A group of nations led by Germany — the bloc’s largest economy — the Netherlands and Denmark were calling for a cautious approach to avoid too much market intervention. Meanwhile, a faction including Belgium, Italy, Greece and Poland, was pushing for a more aggressive tool to contain gas prices.

The commission has previously said the cap should be a deterrent rather than a tool that should be actively used. It doesn’t aim to artificially set prices but to prevent extreme spikes. Germany and some other countries had voiced concerns that a price limit in Europe could make the region less attractive for sellers globally at a time when the bloc seeks alternatives to Russian supplies.

The agreement also unlocks a broader emergency package to rein in market volatility and pave the way for joint gas purchases, which had been put on hold amid a rift on the price cap. Germany was seeking simpler procedures for assessing the impact of renewable projects on the environment as an element of the broader measure. --Bloomberg

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