© Reuters. A gas installation is pictured on April 30, 2022 at the Cavern Underground Gas Storage (CUGS) Kosakowo facility near Debogorze, Poland. Photo taken on April 30, 2022. Reuters/Kacper Pempel
BRUSSELS (Reuters) – The 27 European Union countries on Wednesday rejected a proposal by the EU executive to cap future gas prices at 275 euros per megawatt-hour (MWh), a plan that quickly drew criticism from both supporters and opponents.
After months of infighting within the bloc, the European Commission’s executive proposed the cap ahead of a meeting of EU energy ministers on Thursday to discuss the bloc’s latest emergency measures to ease the bloc’s energy crisis looming in winter.
If the front-month price of the Dutch gas exchange Title Transfer Facility (TTF) exceeds EUR 275/MWh for two consecutive weeks, and at the same time the price is EUR 58 higher than the global price of liquefied (LNG), it will take effect as a reference price for 10 consecutive trading days .
The proposal drew derision from proponents of decisive market intervention to drive down runaway energy prices last August, which hit record highs last August as Russia cut supplies after EU sanctions over Moscow’s war on Ukraine.
Polish Prime Minister Mateusz Morawiecki said the level proposed was “very high”, while his Spanish counterpart said the offer was “clearly insufficient”.
“If it’s an option, we’re on the wrong track,” Pedro Sanchez said.
Italy’s energy minister said the proposed cap was set too high, while the semi-official Athens news agency quoted Greece’s energy minister as saying his government wanted a cap of 150-200 euros.
It would not have launched last August without triggering the committee’s proposed cap, which proponents of the solution say makes it useless.
The TTF front-month contract has risen since the European Commission’s proposal on Tuesday, trading above €130/MWh, compared with a peak above €340 last August.
Consulting firm Eurointelligence said the commission’s proposed standard meant the cap “was clearly designed not to be used: in other words, it was not intended to actually limit prices.”
As many as 15 EU countries require strict caps. Among them, Belgium, Poland, Italy and Greece threatened on Thursday to block other energy measures from being approved if the package did not include viable plans to prevent price hikes.
On the other side of the negotiating table, however, is a small but powerful bloc led by Germany, the EU’s largest economy.
They join the Netherlands, Sweden and Finland in arguing that the cap will prompt suppliers to sell elsewhere and cut incentives to lower gas consumption.
To assuage those concerns, the European Commission said tracking global LNG prices would ensure suppliers continued selling to Europe. It also proposes that mandatory gas savings would have implications for the EU if the cap is activated.
It would mark a major change in EU policy, given that member states have so far only agreed to voluntary cuts in gas consumption. However, a senior EU diplomat said the “fundamental issues” surrounding the cap had not been resolved.
“We’re very, very focused on the risks here, and it’s going to be a very, very risky endeavor,” said the person, who spoke on condition of anonymity.
“Saving, saving, saving. More renewables in the energy mix. This is the main and only solution to the crisis.”
EU countries must approve the commission’s proposal before it can become law, but given the current split of opinion, hopes are low that energy ministers will work out specifics this week.
The focus will be on whether they will agree on other energy policies awaiting approval on Thursday, including speeding up permits for renewable energy and launching joint gas procurement for the EU.