European Union approves cap on natural gas prices

Environmental activists argue that the risk of sabotage or accident makes fossil fuel infrastructure a “ticking time bomb”.

Lisa Niesner | Reuters

European Union energy ministers agreed on Monday after two months of intensive negotiations on a “dynamic” cap for natural gas prices.

The introduction of a cap on gas prices has proved controversial for European officials. While many EU member states have argued that the measure is essential to bring down sky-high energy costs for consumers, others have worried about the policy’s potential market impact.

“We did our job, we got the deal. Another Mission Impossible accomplished,” said Jozef Sikela, Industry Minister of the Czech Republic, which holds the EU Council Presidency, at a press conference.

Energy ministers overcame their differences and agreed on what they call a market correction mechanism. It will be activated automatically under two conditions: if front-month gas contracts exceed 180 euros ($191) per megawatt-hour on the Dutch title transmission facility – Europe’s main benchmark for natural gas prices – for three consecutive working days; and the price is 35 euros higher than a reference price for liquid natural gas on world markets for the same period.

The measure applies from February 15. If applied, it will set a “dynamic bid limit” for natural gas futures trades for 20 working days.

The Dutch TTF traded at around 109 euros per megawatt hour on Monday.

Sikela emphasized that it is not a strict cap as prices could potentially go over the limit if prices in the LNG market exceed a certain level. “In other words, this is not a fixed cap but a dynamic one,” Sikela added.

Kadri Simson, EU Commissioner for Energy, said in a press conference: “It is a tool to prevent episodes of excessive gas prices that are not in line with world market prices. We saw this, for example in August this year when gas prices shot up to over 300 euros per megawatt hour.”

“High and extremely volatile gas prices are damaging our economy. They also harm our homes and businesses. This is intended to take away the war premium, the premium over global LNG prices, that Europe pays due to pricing in the TTF market,” she said.

“Today we agreed on a proposal for a market correction mechanism to protect citizens and businesses from excessively high prices [energy prices]’ wrote Tinne Van der Straeten, Belgium’s energy minister, on Twitter.

“Right from the start there was a common goal: keep prices under control & ensure security of supply. Today we have achieved this goal.”