EU proposes to cap ‘excessive and volatile’ gas prices this winter | Energy industry

The EU has proposed a cap “excessive and volatile” on gas prices this winter as part of a package to protect consumers.

Brussels has put forward a new mechanism to control prices by blocking transactions above a certain level, which can be triggered “when needed”.

European policymakers are attempting to insulate households from the worst of the impact from Russia’s invasion of Ukraine, which has sent wholesale gas prices soaring.

The package of measures, agreed by the EU commissioners on Sunday and announced on Tuesday, included emergency regulations to allow joint gas buying across the EU to negotiate better prices and provisions to permit greater cooperation between countries in a gas supply emergency.

EU leaders will discuss the proposals at a summit lthis week and if approved the cap could come into force this winter.

The European Commission has devised the plan to create a new benchmark for gas prices to better reflect the price of liquefied natural gas and de-link prices from the the main European gas exchange, the Title Transfer Facility (TTF) Dutch gas hub.

However, this scheme is expected to take time to implement, so the option to put a cap on prices will be introduced in the interim. It will block transactions from taking place on the TTF at a price higher than the “dynamic price limit”.

Gas is trading at more than 200% higher than this time last year on the TTF exchange after Russia slashed gas supplies into Europe in response to sanctions against the Kremlin.

The commission is also proposing to support energy traders who could be exposed to volatile prices in an echo of the support devised by the Treasury and the Bank of England in the UK.

The commission’s president, Ursula von der Leyen, said: “Russia’s war on Ukraine has severe consequences on global and European energy markets. We act in unity and have prepared well for the winter ahead, filling our gas storages, saving energy, and finding new suppliers. Now we can tackle excessive and volatile prices with more security.

“We will introduce a temporary mechanism to limit excessive prices this winter, while we develop a new benchmark so that LNG will be traded at a fairer price. We provide legal tools for joint EU purchasing of gas, ensure solidarity in security of supply for all member states and negotiate with our reliable gas suppliers to secure gas at affordable prices.”

She added that investment in renewables and infrastructure must be accelerated.

The executive vice-president, Margrethe Vestager, who handles competition policy, said: “In the context of the current gas crisis, we stand ready to accompany firms willing to enter into a joint purchasing consortium, subject to safeguards and in line with our competition rules. Our goal is to ensure the full benefits of joint purchasing can be reaped and further passed through.”

Countries including Germany and the Netherlands have warned that capping prices could backfire, if it left EU countries unable to attract supply in competition with other global markets. However, other member states are concerned that high prices could lead to social unrest.

The move comes amid heightened concerns over gas shortages and prices this winter. European countries are racing to prevent power shortages this winter and limit consumption by businesses and consumers. The commission wants countries to emulate efforts to cut gas consumption by 15% every month until March, which have been achieved in August and September.

The German state is to pay this December’s monthly gas bill for all households and small to medium businesses.

On Tuesday, Saad al-Kaabi, the chief executive of the state-owned QatarEnergy, said Qatar would not divert gas that was under contract with Asian buyers to Europe this winter.