# Explainer-Europe’s fiercely contested plan to cap gas prices Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2022-12-13 Category: NEWS Category URL: https://financedigest.com/category/news Meta Title: EU Gas Price Cap: Divided Opinion Sparks Debate Meta Description: Discover why EU countries are divided on a gas price cap proposal, how it may impact households and businesses, and the latest efforts to reach agreement. URL: https://financedigest.com/explainer-europes-fiercely-contested-plan-to-cap-gas-priceshtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/2022-12-13t130147z1lynxmpeibc0l4rtroptp4ukraine-crisis-eu-gas-1736814727878-compressed.jpg) By Susanna Twidale, Kate Abnett and Gabriela Baczynska (Reuters) – A proposed cap on gas prices has divided European Union countries for months, as countries have argued about how high it should be set and whether the measure could hinder rather than help Europe’s efforts to cope with an energy crisis. The aim is to shield European households and businesses from the kind of gas price spikes experienced this year, after Russia stopped the majority of gas deliveries to Europe following its invasion of Ukraine in February. Energy prices in Europe have led to the highest inflation in decades, hiked [bills for households](https://www.financedigest.com/44-of-uk-households-are-worried-theyll-have-to-foot-the-bill-for-net-zero.html "44% of UK Households are Worried They’ll Have to Foot the Bill for Net Zero") and forced some industries to close. But the EU’s 27 member countries are split over the proposed gas [price cap](https://www.financedigest.com/oil-prices-rise-after-opec-keeps-output-steady-russian-price-cap-imposed.html "Oil prices rise after OPEC+ keeps output steady, Russian price cap imposed") measure. Countries’ [energy ministers meet on Tuesday in the latest attempt to reach agreement](https://www.financedigest.com/petrofac-hitachi-energy-receive-14-billion-agreement-from-tennet.html "Petrofac, Hitachi Energy receive billion agreement from TenneT"). Here’s what you [need to know](https://www.financedigest.com/g20-summit-what-you-need-to-know-now.html "G20 Summit: What you need to know now"). WHY [CAP GAS PRICES](https://www.financedigest.com/factbox-u-s-offers-new-details-on-plan-to-cap-russian-oil-prices.html "Factbox-U.S. offers new details on plan to cap Russian oil prices")? To [try to limit the impact of high gas prices](https://www.financedigest.com/eu-meets-to-try-to-break-gas-price-cap-impasse.html "EU meets to try to break gas price cap impasse") on their economies, around 15 EU countries have called for a Europe-wide gas price cap. European gas prices remain relatively high, although they have [eased in recent months](https://www.financedigest.com/inflation-in-key-german-states-eases-for-second-month.html "Inflation in key German states eases for second month") as the EU has agreed some emergency measures, including obligations to fill gas storage. The front-month contract on the Dutch Title Transfer Facility (TTF) gas hub, which acts as the European benchmark, was trading around 140 euros per megawatt hour (MWh) on Wednesday. That [compares](https://www.financedigest.com/glastons-interim-report-1-january-31-march-2018-orders-received-grew-23-comparable-operating-profit-at-previous-years-level.html "Glaston’s Interim Report 1 January – 31 March 2018: Orders received grew 23%, comparable operating profit at previous year’s level") with around 95 euros/MWh a year ago and around 14 euros/MWh two years ago. The [price spiked to record](https://www.financedigest.com/tesla-posts-record-quarterly-deliveries-after-price-cuts-up-4-from-q4.html "Tesla posts record quarterly deliveries after price cuts, up 4% from Q4") highs of above 340 euros/MWh in August. HOW WOULD THE EU CAP WORK? The European [Commission proposed](https://www.financedigest.com/german-gas-commission-agrees-proposals-to-ease-impact-of-soaring-prices.html "German gas commission agrees proposals to ease impact of soaring prices") on Nov. 22 a cap that would kick in if the front-month TTF contract exceeds 275 euros/MWh for two weeks and is also 58 euros higher than a Liquefied Natural Gas (LNG) reference price for 10 consecutive [trading days](https://www.financedigest.com/stocks-fall-treasury-yields-rise-upon-final-2022-trading-day.html "Stocks fall, Treasury yields rise upon final 2022 trading day"). If these conditions are met any trades above the [cap level](https://www.financedigest.com/g7-finance-chiefs-agree-on-russian-oil-price-cap-but-level-not-yet-set.html "G7 finance chiefs agree on Russian oil price cap but level not yet set") would not be accepted. The Commission could immediately suspend the cap if it had negative consequences, including [risks to Europe’s](https://www.financedigest.com/heineken-sees-europe-resilience-offseting-asia-slowdown-risk.html "Heineken sees Europe resilience offseting Asia slowdown risk") gas supply. It would not affect private gas trades outside energy exchanges, which the Commission said were a safety valve for critical deliveries and were unlikely to take over any major [share of trade](https://www.financedigest.com/social-trading-is-the-new-way-that-gen-z-are-getting-their-share-of-the-pie.html "Social Trading is The New Way That Gen Z Are Getting Their Share of The Pie"). WHAT DO EU COUNTRIES THINK? EU countries widely criticised Brussels’ proposal, reflecting long-held divisions between nations over whether to [cap prices](https://www.financedigest.com/belgium-supports-energy-price-caps-suspending-trading-in-eu-power-crunch.html "Belgium supports energy price caps, suspending trading in EU power crunch") at all. Belgium, Greece, Italy, Poland and other [countries that want a cap](https://www.financedigest.com/eu-countries-spar-over-gas-price-cap.html "EU countries spar over gas price cap") said the proposed level was too high and the conditions to apply the cap were so strict it would never be triggered – with some calling the proposal a joke. EU countries are considering a revised version of the EU proposal, which would lower the [cap to 200-220 eur/MWh and 35 eur/MWh above the LNG reference price](https://www.financedigest.com/shell-energy-to-pay-for-overcharging-price-cap-customers-ofgem.html "Shell Energy to pay for overcharging price cap customers -Ofgem"), and make it easier to trigger – requiring three to five days at that level, versus the 10 originally proposed. But [Europe’s biggest gas buyer](https://www.financedigest.com/ford-to-make-call-on-europe-job-cuts-by-mid-feb-as-buyers-circle-german-site.html "Ford to make call on Europe job cuts by mid-Feb as buyers circle German site") Germany, as well as the Netherlands and Denmark are opposed to price caps. They [say capping prices](https://www.financedigest.com/buy-off-plan-to-beat-stalling-house-prices-and-falling-rental-yields-says-jean-liggett.html "“Buy off-plan to beat stalling house prices and falling rental yields” says Jean Liggett ") will disrupt the normal functioning of Europe’s energy market and make it harder to attract fuel, if gas suppliers divert cargoes to regions where prices are higher than the EU’s capped level. WHAT DO [GAS MARKET](https://www.financedigest.com/gas-insulated-transmission-line-market-expand-at-a-healthy-cagr-of-4-5-over-2021-2031.html "Gas Insulated Transmission Line Market Expand At A Healthy CAGR of 4.5% Over 2021-2031") PARTICIPANTS THINK? Market actors including the Intercontinental Exchange (ICE), which hosts gas TTF trading, have warned the Commission not to go ahead with its proposal. In a memo sent to the Commission, seen by Reuters, ICE said the proposal could drive up gas prices because liquidity providers were likely to stop selling TTF gas futures if prices climbed even near to the cap level, and that the [resulting shortage of sellers would drive prices](https://www.financedigest.com/immediate-lift-of-oxford-property-prices-to-result-from-new-direct-high-speed-rail-connection-with-london.html "“Immediate lift” of Oxford property prices to result from new direct high speed rail connection with London") higher. The European Central [Bank said last week that the EU proposal could jeopardise financial stability and potentially cause utilities to move to more risky private](https://www.financedigest.com/gucci-banks-on-private-salons-for-the-ultra-rich-to-revive-sales.html "Gucci banks on private ‘salons’ for the ultra-rich to revive sales") trading to avoid the cap – concerns also raised by the Association of European Energy Exchanges. The EU energy commissioner Kadri Simson last [week](https://www.financedigest.com/eu-countries-eye-deal-on-more-energy-measures-within-weeks.html "EU countries eye deal on more energy measures within weeks") met representatives from energy exchanges to discuss their concerns. The EU proposal [includes “strong safeguards”](https://www.financedigest.com/3-ways-to-safeguard-and-include-women-in-construction.html "3 ways to safeguard and include women in construction") to avoid negative consequences, she said. NEW GAS PRICE BENCHMARK The [price cap](https://www.financedigest.com/eu-seeks-to-break-impasse-over-gas-price-caps-no-regret-plan-floated.html "EU seeks to break impasse over gas price caps, ‘no regret’ plan floated") is designed to be a temporary fix that would apply from Jan. 1 for one year. As a longer-term solution, the Commission wants to form a new LNG [price benchmark in Europe](https://www.financedigest.com/tesla-expands-discounts-with-price-cuts-in-europe-singapore-israel.html "Tesla expands discounts with price cuts in Europe, Singapore, Israel"), and has asked EU energy regulators to launch one by the end of March. Historically, the gas [price at the TTF hub has been used as a benchmark for LNG deliveries into Europe](https://www.financedigest.com/analysis-runaway-prices-have-central-europe-on-the-ropes.html "Analysis-Runaway prices have central Europe on the ropes"). But the major reduction of Russian gas supplies this [year has made the TTF price extremely volatile](https://www.financedigest.com/crop-merchant-louis-dreyfus-gets-profit-boost-in-volatile-year.html "Crop merchant Louis Dreyfus gets profit boost in volatile year"), and often more expensive than LNG prices in other regions. Brussels [says a new index is needed since the TTF is guided by pipeline supply](https://www.financedigest.com/ceraweek-europe-gas-supplies-to-stay-tight-2-more-winters-equinor-ceo-says.html "CERAWEEK-Europe gas supplies to stay tight 2 more winters, Equinor CEO says") and no longer represents a market that includes more LNG, as Europe has increased its use this year to replace Russian pipeline gas. The benchmark’s [success would depend on whether the gas industry](https://www.financedigest.com/how-to-successfully-expand-and-manage-your-businessesin-multiple-industries.html "How to successfully expand and manage your businesses in multiple industries") uses it. ($1 = 0.9522 euros) (Reporting by Susanna Twidale in London, Kate Abnett and Gabriela Baczynska in Brussels; Editing by Barbara Lewis and Jane Merriman) --- This blog is powered by Superblog. Visit https://superblog.ai to know more. ---