EU plans “emergency brake” price cap for natural gas

The European Commission has proposed emergency braking of natural gas prices well above current levels to prevent further damage to the economy from Russia’s increasing pressure on energy supplies.

After months of wrangling and divisions within the bloc, the commission proposed a cap of €275 per megawatt hour. That’s above the current level of around €120, but below the highs the continent suffered over the summer.

It will only be activated when strict conditions are met – an apparent attempt to stave off opposition from countries that have long resisted capping market prices, which could make it more difficult to risk getting gas from new suppliers.

“It’s not a silver bullet, it’s a powerful tool that we can use when needed,” Energy Commissioner Kadri Simson told reporters. “The mechanism is carefully designed to be effective without jeopardizing our security of supply, the functioning of EU energy markets and financial stability.”

The proposal has yet to be approved by national governments but comes after months of lobbying by some member states to take action to curb energy costs that have proved ruinous for parts of Europe’s economy. While prices have eased in recent weeks, Moscow on Tuesday threatened to further curb gas flows to Europe, raising the prospect of another price hike.

The proposed tool is used when futures on the Dutch Title Transfer Facility exceed €275 for two weeks and the gap between TTF and LNG prices is greater than €58 for 10 trading days.

At the peak of the crisis in the summer, the price did not stay above €275 for two weeks, suggesting that if it had been there at the time, it would not have activated. Ms Simson said the mechanism was conceived with the idea that “extreme” situations observed earlier this year “could return”.

Traders and policymakers are excited to see if Russia will completely cut off its last remaining gas pipelines to Western Europe via Ukraine. It said on Tuesday it would further restrict shipments from next week because of shipments to Moldova.

While Europe has stocked up on gas and mild weather has made the autumn lighter than feared, the continent now faces the prospect of having to stock up for next winter without any Russian gas at all. The focus is now shifting to next year.

Europe is divided in how to deal with the crisis and is struggling to find measures that all members can support. When the bloc hesitated, Germany went ahead with its own consumer cushioning program, angering neighbors who were demanding a unified approach.

The EU has already taken action to curb demand – with mostly voluntary targets – and developed measures to allow governments to use windfall taxes on companies to ease the burden on budgets. However, despite months of summit meetings and negotiations, it has not been possible to push through any kind of cap.

Nations led by Italy, Poland, Greece and Belgium have called for Commission action ahead of a decision on a broader package to curb soaring gas prices, scheduled for Thursday. Bloc leaders last month unanimously called on the executive to propose measures including a temporary “dynamic price corridor” for gas transactions. EU plans “emergency brake” price cap for natural gas

Fry Electronics Team

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