The European Union Underlies Gas Price Limits To Overcome Energy Crisis

Illustration of the Russian gas facility. (Wikimedia Commons/Yellow

JAKARTA - EU energy ministers on Monday agreed to a gas price limit, after weeks of talks about emergency measures that have broken opinion across blocks as they seek to tame the energy crisis.

The restrictions are the European Union's latest attempt from 27 countries to lower gas prices, which have pushed for higher energy bills and pushed for record high inflation this year, after Russia halted most of its gas shipments to Europe.

The ministers agreed to set a price limit of 180 euros per megawatt hour, on a contract next month for the Dutch Title Transfer Facility (TTF) gas center, which serves as Europe's benchmark.

The price of TTF must also be 35 euros/MWh higher than the reference price based on the assessment of the price of liquefied natural gas (LNG) for three days.

"We have managed to find an important deal that will protect citizens from skyrocketing energy prices," said Jozef Sikela, Czech Republic's Minister of Industry, who holds the post of president of the European Union.

The agreement will be formally approved by countries in writing, after which it can take effect.

This effectively limits the price of tradable gases, while allowing these boundary levels to fluctuate in line with global LNG prices - a system designed to ensure EU countries can still bid at competitive prices for gas entering from the global market.

Germany chose to support the deal, although it has raised concerns about the policy's impact on Europe's ability to attract gas supply in a price-competitive global market, three EU officials said.

A European Union official told Reuters Germany agreed to a price limit after countries approved changes to other regulations on accelerating renewable energy permits, and stronger protections were added to those limits.

The security includes that the limit will be suspended if the European Union faces a shortage of gas supply, or if that limit causes a decrease in TTF trading, a spike in gas use, or a significant increase in the call margin of gas market players.

The surge in electricity and gas prices has rocked energy companies across Europe, forcing utility and merchants to secure additional funding from governments and banks to meet margin call requirements.

The contract hit a record high of 343 euros in August, a price spike pushing the EU to move forward with a price limit.

Although agreed, Hungary is said to oppose price limits, while the Netherlands and Austria chose abstain. Both have rejected the limit during negotiations, fearing it could disrupt Europe's energy market and jeopardize European energy security.

Dutch Energy Minister Rob Jetten said: "Despite progress in recent weeks, the market correction mechanism remains potentially unsafe."

"I remain concerned about major disruptions to the European energy market, about financial implications and, most importantly, I am concerned about the safety of European supplies," he added.

The European Union proposal has also received opposition from some market participants, who said it could lead to financial instability.

The Intercontinental Exchange (ICE), which hosts TTF trading on the Amsterdam exchange, last week said it could move TTF trading outside the EU if the block limits prices.

The deal follows months of debate over the idea and two previous emergency meetings, which failed to reach an agreement among EU countries that disagreed whether price restrictions would help or hinder Europe's efforts to address the energy crisis.

About 15 countries, including Belgium, Greece, and Poland, have asked for a limit of under 200 euros/MWh, much lower than the trigger limit of 275 euros/MWh originally proposed by the European Commission last month.