European Union [EU] has overcome the few discordant tunes that held up the agreement on price cap, and now have finally reached an agreement to implement a gas price cap of €180/MWh, far lower than the €275/MWh trigger originally suggested by the European Commission.
The pro-cap countries including Poland, Belgium and Greece had argued that the initial cap proposal was too high, stressing that it should to be below €200/MWh if it is to tackle the high gas prices that the continent has grappled with this year.
Interestingly, Germany has also voted to support the price cap despite having reservations that the price cap will negatively impact Europe’s ability to attract gas supplies in tight and price-competitive global markets.
What is on the table now is that the EU price cap would not fall below €188/MWh, even in the event that the LNG reference price falls to far lower levels. However, the EU gas price cap would move with the LNG reference price if it increased to higher levels, while remaining €35/MWh above the LNG price.
Analysts posit that this system would ensure the bloc can bid above market prices in order to attract gas in tight markets. Once triggered, the cap will prevent trades being done on the front-month to front-year TTF contracts at a price higher than €35/MWh above a reference price that comprises existing LNG price assessments.
Before now the European Commission had planned to tie benchmark European gas futures prices to the price of liquefied natural gas on the spot market. The “safety price ceiling” would be triggered automatically, when “the front-month TTF derivative settlement price exceeds €275 for two weeks” and, second, when “TTF prices are €58 higher than the LNG reference price for 10 consecutive trading days within the two weeks.”
Both moves caused trepidation amongst gas traders. “Even a short intervention would have severe, unintended and irreversible consequences in harming market confidence that the value of gas is known and transparent,” said the European Federation of Energy Traders.
By Bosco Agba