EU Considers Temporary Cap on Natural Gas Prices

European Union officials are considering the potential introduction of a cap on natural gas prices as part of discussions on a clean industrial deal policy to boost Europe’s industry.Europe is losing competitiveness due to the European gas prices which are up to four times higher than those in the United States.A cap on prices is being discussed at the European Commission ahead of next month’s release of the so-called Clean Industrial Deal or the related Action Plan on Affordable Energy Prices, sources familiar with the talks have told the Financial Times.The EU currently has a cap on gas prices, the so-called “market correction mechanism,” from 2022. But its ceiling is $187 (180 euros) per MWh for TTF,Europe’s key benchmark, and was never needed as prices have not reached that level.While debates of a new temporary cap are ongoing, the energy industry and market participants and exchanges expressed their “strong concerns regarding the potential inclusion of a price cap” in the clean industrial deal, energy companies, banks, liquidity providers, exchanges, and clearing houses wrote in a joint letter to European Commission President Ursula von der Leyen.“We believe this measure, if announced, could have far-reaching negative consequences for the stability of European energy markets and the security of supply across the continent,” the associations and trade groups said.“Implementing an artificial price cap would not address the underlying changes in global gas valuations driven by evolving supply and demand dynamics. Instead, it would likely harm the trust in TTF and prompt the global gas community to shift towards other, unrestrained and therefore more representative reference prices, which are primarily located outside of the EU.”In addition, a gas price cap could jeopardize long-term supply for Europe as it would “undermine Europe’s credibility as a serious customer in the global gas market,” they added.The debate in Europe is taking place as the industry continues to suffer from much higher energy prices compared to competitors and as Europe’s benchmark gas prices rallied to a two-year high this week amid cold weather and fast-depleting inventories.By Tsvetana Paraskova for Oilprice.com