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EU’s proposed gas price cap branded a ‘joke without a cap’

by SuperiorInvest

EU plans to cap gas prices to avoid a repeat of the spike in energy costs seen in the summer, have come under fire from critics who say it is unlikely to ever be used.

On Tuesday, the European Commission proposed a ceiling on wholesale gas prices for the month at 275 euros per megawatt hour. However, the cap would only apply if prices were above this level for two weeks and were more than €58 per MWh higher than the 10-day average price for liquefied natural gas.

“This is not a silver bullet,” European Energy Commissioner Kadri Simson said when she announced the policy on Tuesday. “But [it] it provides a powerful tool that we can use when we need it.”

However, critics called the plan almost unnecessary.

Wholesale gas prices soared to record highs above €300 per MWh – the equivalent of more than $500 per barrel in oil terms – in the summer after Russia cut off supplies on its biggest route to Western Europe, Nord Stream 1 to Germany. Even then, the ceiling would not be triggered, as prices remained above €275 per MWh for only about a week.

“It’s a joke . . . It’s a proposal that won’t do anyone any good even in the extreme scenario of August. It’s a non-cap,” said Simone Tagliapetra, a senior fellow at the influential Bruegel think tank in Brussels.

“It seriously risks jeopardizing confidence in the Commission regarding the solution to the energy crisis,” he added.

Several diplomats from member states that support the price cap told the Financial Times it was too high for their governments to accept. One senior EU diplomat said setting an amount higher than €250 per MWh “is just another way to lower the cap”.

At least 15 EU countries including Spain and Greece pushed for the Commission to introduce a cap hoping to keep consumer prices down through the winter and prevent social unrest.

Germany, the Netherlands and Denmark are among member states that remain skeptical about the safety of market interventions, arguing that lower prices would lead to increased gas consumption and prompt traders to send gas elsewhere.

If the cap ever comes into force, Brussels has said it will require EU capitals to inform the commission of their efforts to prevent energy consumption from rising.

While European gas prices remain high — around €116 per MWh on Tuesday, compared with typical costs of €5 to €35 per MWh over the past decade — concerns about blackouts this winter have eased thanks to milder autumn weather and the ability of EU countries to fill underground storage containers.

But policymakers worry that competition for gas to replenish supplies next spring, when gas flows from Russia may be non-existent, will cause a repeat of the August highs.

“This is designed to be ready for next year’s filling season and the challenging situation of having to fill our underground gas storage without access to Russian gas,” Simson said.

Simson said the level of the proposed cap could be reviewed during discussions with member states.

There were also EU plans criticized by energy exchanges and traders for endangering the bloc’s financial stability.

ICE, which runs Europe’s benchmark gas exchange, rejected any price cap, saying it would “result in a significant margin increase that could destabilize the market”.

If regulators raise concerns that the cap has caused a significant increase in gas consumption, threatens financial markets or poses a risk to security of supply, the Commission said the cap could be lifted on the same day and its effects would be “permanent”. monitored’ by a group of agencies including the European Central Bank.

The proposal will be discussed by EU energy ministers at an emergency meeting this Thursday, but is unlikely to be signed until ministers meet again on December 19.

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