EU could be heading towards gas price cap
October 6, 2022
European Commission President Ursula von der Leyen on Wednesday urged EU leaders to reconsider their policy stance on capping gas prices in an effort to limit skyrocketing energy costs when they meet for a special summit this Friday in Prague.
In a letter addressed to the leaders of the bloc's 27 member states, she said, "We should consider a price limitation in relation to the TTF in a way that continues to secure the supply of gas to Europe and to all member states," referring to gas prices on the Dutch Title Transfer Facility (TTF), a virtual trading point.
Many Europeans say the TTF is outdated as its benchmark is determined solely with calculations of pipeline supply rather than increasingly prominent liquified natural gas (LNG).
Von der Leyen said the cap would give the bloc time to come up with an alternative gas pricing benchmark.
Some in EU worry a cap could drive up consumption when supplies are low
The Commission president, who on Wednesday spoke to EU parliamentarians in Strasbourg, France, said her "roadmap" included negotiating a "corridor" for gas supplies from reliable partners such as Norway and the US.
Her proposal also calls on EU leaders to consider capping prices on gas used to produce electricity, with such a move being accompanied by measures that ensure cuts in demand.
"We are ready to discuss a cap on the price of gas that is used to generate electricity," von der Leyen told parliamentarians, "This cap would also be a first step on the way to a structural reform and overall reform of our electricity market."
Critics fear a cap could actually foster more consumption by keeping prices artificially low at a time when supplies may be extremely limited.
Such fears were articulated by Norwegian Energy Minister Terje Aasland, who said, "It would rather make the situation worse because you can expect such a solution to contribute to increased consumption and fewer deliveries."
Norway has replaced Russia as the EU's biggest gas supplier since Moscow began its invasion of neighboring Ukraine on February 24.
Von der Leyen acknowledged that her proposed cap, "entails drawbacks in terms of security of supply of gas."
Brussels has generally been open to capping Russian pipeline gas as a way to erode Moscow's massive energy income but has been less keen on capping LNG prices for fear of driving away business.
A jab at Germany's recent go-it-alone approach
Von der Leyen seemed to chide Germany, which recently surprised European partners when it announced a €200 billion ($198.8 billion) national energy relief package. She said that, "to avoid serious fragmentation [in the EU], we need a united and common European response," otherwise, she said there would be, "distortions of the single market."
Germany, Denmark and the Netherlands have been opposed to a gas cap as they say such a move could lead to dwindling supplies as providers seek out more lucrative markets.
Still, at the moment a majority of EU countries favor the idea of a cap as winter approaches and Russia slashes gas deliveries in response to European sanctions.
Von der Leyen said the European Commission would present an outline for structural reforms to the EU electricity market by the end of the year, with the aim of creating a "a more decarbonized future."
js/wd (AFP, Reuters)