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Europe’s gas price cap is causing consternation in some countries

by SuperiorInvest

Energy Commissioner Kadri Simson speaks to the media. EU countries are discussing new steps to solve the energy crisis.

Thierry Monasse | Getty Images News | Getty Images

Several EU member states are unhappy with the bloc’s proposed cap on natural gas prices – at 275 euros per megawatt hour – which aims to prevent consumers from incurring excessive costs.

The introduction of a cap on gas prices has been one of the most controversial measures for Europe amid an acute energy crisis following Russia’s invasion of Ukraine.

The The idea was given political support by 27 EU leaders at the end of October, after several months of discussions. But a handful of nations are demanding specific guarantees before approving the proposal, while others say the cap is too high.

“A price cap at the levels the commission is proposing is not really a price cap,” Kostas Skrekas, Greece’s environment and energy minister Julianna Tatelbaum told CNBC on Tuesday, hours after the European Commission, the EU’s executive arm, set the proposed level.

“So [a] the price ceiling of 275 euros is not a price ceiling, no one can, will not last long to buy gas at this expensive price. We certainly believe that a price ceiling below 200 euros, between 150 and 200 euros, would be more realistic,” he added.

EU energy ministers are due to meet on Thursday to discuss the proposed price cap.

Poland, Greece, Belgium and Spain are among the countries that support the cap. The Netherlands and Germany were more skeptical about the benefits of the measures. Putting forward a cap that seems difficult to implement in practice could be a way for the European Commission to bring all 27 countries together on the issue.

“It’s going to be a meeting with grumpy people,” an EU official working for one of the member states, who preferred to remain anonymous due to the sensitive nature of the discussions, told CNBC of the upcoming meeting.

The same official said the commission must present further guarantees that the measures will not disrupt markets.

Kadri Simson, the European energy commissioner, said at a press conference on Tuesday that the proposal was “balanced” and would help the bloc avoid too high prices.

Europe’s energy exchange group, Europex, also said earlier this week it was “deeply concerned” about the market correction mechanism as it could affect financial stability – but also security of supply.

Simson said the proposal, known as the market correction mechanism or MCM, took this into account and “the risks are minimal” to supply.

The Commission proposed to introduce a price cap on title transfer instruments in the first month [TTF] — Europe’s main benchmark for natural gas prices — reaches 275 euros per megawatt hour and when prices are 58 euros ($59.53) higher than the LNG benchmark for 10 consecutive trading days over two weeks. Both conditions must be met to activate the ceiling.

Dutch TTF prices reached an all-time high of 349.9 euros per megawatt hour in August. Under this proposal, the price cap would not be triggered because it was only a short increase.

“This is not a silver bullet,” Simson said at a news conference Tuesday. But she added that the measure provides “a powerful tool that we can use when we need it”.

“Everyone is aware of the possible risks, but there is a clear expectation. We will send signals that despite the difficult situation, we will not pay for anything that the market platform brings to market participants – as happened in August,” she said.

European natural gas prices closed at 124.5 euros per megawatt hour on Tuesday evening.

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