EU gas price cap: Positive step but much more needs to be done

On November 22, after weeks of negotiations and political pressure, the European Commission unveiled a proposal for a measure to limit excessive gas prices. Although the idea to cap prices has divided EU member states for many months, the Commission made the decision to table a formal proposal to establish the first-ever EU-wide cap on gas prices.

Speaking at a press conference, Commissioner for energy Kadri Simson said: ”Until now, we have been missing a tool in our toolbox to address these situations, like the one that we witnessed in August. This is what we are proposing today. This is not a regulatory intervention to set the price on the gas market at an artificially low level. It is a mechanism of last resort to prevent and, if necessary, address episodes of excessively high prices, which are not in line with global price trends.”

If approved by the member states, the so-called ‘market correction mechanism’ will apply to the Dutch TFF, the EU’s main gas trading hub, and will be in place for a year. The gas price cap will be triggered when two conditions are met: first, the gas price exceeds €275 for two weeks, and second, the difference between the TTF price and global LNG price is €58 or more for ten trading days.

CESI Secretary General Klaus Heeger said: “We welcome the proposal of the Commission but it is clear that this mechanism is not a silver bullet. And this is because the cap is too high. A price cap at the levels that the Commission is proposing, a cap at 275 euro, is so high that it will probably never kick in. Natural gas prices in Europe closed yesterday at 124.5 euros per megawatt hour. The proposal is indeed a positive signal, but we expect bolder initiatives.”

CESI President Romain Wolff added: “It is indeed difficult to design an effective tool that will not endanger the security of supply and financial stability. A high price cap may be a risk-free intervention in this regard, but I am afraid that nobody can stand buying gas at this expensive price for such a long time. However, we support the Commissions’ proposal. Not because we consider it an adequate measure, but because it is a first step that may pave the way for more efficient solutions.”