Frowning at EU gas price cap plans

In fact, there is only one fact that is unquestionable in the debate about gas: the price of gas has risen enormously since last year. While a megawatt hour currently costs around 115 euros, the price in the previous year was around half that. In between, in August, the price even climbed to 340 euros – but only for a short time, mainly because the gas storage facilities in the EU could be filled well.

Nevertheless, many – but not all – EU countries want to continue lowering the gas price. How to get there was a major point of contention at practically all top EU meetings in recent months. In October it was said: In principle, one was ready for an upper price limit. But first you need a corresponding proposal from the EU Commission, according to the states. This proposal was now on the table on Tuesday – but there is probably no end in sight to the dispute.

Cover with a bulky name and many “buts”

The authority ultimately titled its plan with “EU instrument to avoid excessive gas price peaks” – and the content also reads similarly bulky. In principle, it is a lid, but with many “buts”. Specifically, one wants to intervene in wholesale. The Dutch trading center TTF is decisive here: the prices for which gas is traded there are decisive for practically the whole of Europe. According to the EU plans, an intervention there should be noticeable throughout the EU.

Pipes on natural gas storage facility Winkler

The gas storage tanks are full, the price has recently recovered

But the question is whether this will happen at all, because the Commission set a price of 275 euros per megawatt hour as the upper limit. However, the measure should only take effect if this value is exceeded for two weeks. And then only if the price per megawatt hour is 58 euros higher than that of liquid gas.

Experts criticize “non-cover”

“A joke,” said Simone Tagliapietra from the Brussels think tank Bruegel to the “Financial Times”. “It is a proposal that, even in an extreme scenario like August, will not bring anything useful to anyone. It’s a non-cover,” was the expert’s devastating verdict.

Because even when the price shot up at the time, it was only about a week above the now targeted limit of 275 euros. “The conditions that were proposed are formulated in such a way that they will probably never be met,” Christian Egenhofer from the Brussels think tank CEPS told “We’re probably talking more about a placebo,” says the expert.

“Offending supporters and opponents”

Bruegel’s Georg Zachmann meanwhile said in an interview that the cap proposed by the Commission would “offset supporters and opponents alike”. It is a “gas price cap that is actually not effective, at the same time it is a gas price cap that, if it were effective, would come as a very unpleasant surprise to all those who are “afraid of such a cap”, says Zachmann.

However, Zachmann does not see Brussels as solely responsible for this: the Commission received an “impossible order” from the 27 EU states, they should have “invented a mechanism that lowers prices without the quantities becoming scarce”. From an economic point of view, that would not work. So a solution had to be found that politically “doesn’t look like capitulation,” according to the expert.

A delicate role for the trading platform TTF

In the conversation, Zachmann also explained the role of the wholesale center TTF, which has been mentioned more and more in the media lately. So far, it has been considered “by far the most liquid” market, said Zachmann – and it “represented the supply situation in Europe well”: When the winter was cold, the TTF rose, when there was a lot of liquid gas on the market, the TTF fell, it “was always a good measure of the current scarcity and market situation,” says Zachmann.

Country leaders at EU summit meetings

AP/Geert Vanden Wijngaert

At a summit meeting in October, the countries commissioned the commission – there was no agreement on the details at the time

That’s why many long-term contracts refer to the price there, “including many contracts with Russia,” says Zachmann. It all worked well when the gas flows were still “as they always were”. Now, however, “the gas flows have turned around all over Europe” and “new bottlenecks have arisen”, which is why Italy and Spain, for example, now have lower prices and are therefore interested in intervening in the higher price of the TTF.

“The hope is: you change the thermometer, and that changes the temperature for everyone. This works because these long-term contracts are largely tied to the TTF,” says Zachmann. But if the TTF were to get a “very effective” price cap, then “there would no longer be any trading because there will always be someone who is willing to pay more for the scarce gas”. The market would thus shift to other trading venues. That would ultimately amount to a “hollowing out” of the TTF. That, too, is probably one of the reasons why the Commission’s proposal was set up so loosely.

Heated discussion expected

This means that the meeting of energy ministers on Thursday is faced with an extremely complicated starting point: it will be up to the member states to either accept, change or reject the Commission’s proposal. So it may very well be that the high upper limits could become much tighter. And it is precisely this debate that could widen the gap that has already been opened up in previous debates.

Spanish Minister Teresa Ribera said the Commission wanted to “fool the world” with its proposal and stressed that it would “strongly oppose it”. “We had asked the European Commission to draw up a proposal and at the last minute they presented us with this proposal, which is not one,” said Ribera.

Germany and the Netherlands have so far been considered skeptical about a fixed gas price cap – it is questionable whether the generous upper limit could satisfy Berlin, for example. Austria called for another “Iberian model” gas price cap, in which the state subsidizes gas used for electricity generation.

Time for agreement is running out

The EU ambassadors discussed the price cap on Wednesday, and the ministers will discuss it on Thursday. Also on the agenda is joint gas purchasing, on which there has actually been an agreement since March, but which never got off the ground. If the EU countries agree that they want a gas price cap, there will probably have to be an agreement at the latest at the last top meeting of the year on December 15th.

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