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The EU sets limits on "gas prices" to solve the energy dilemma

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Xinhua News Agency, Brussels, November 24th (International Observation) The European Union has set limits on "gas prices" to solve the energy dilemma

Xinhua News Agency reporter Lin Haokang Yi Pan Geping

EU energy ministers held a special meeting in Brussels on the 24th and failed to reach an agreement on the natural gas price limit mechanism proposed by the European Commission. This mechanism that has caused widespread controversy will be discussed again in mid-to-early December.

After the Ukrainian crisis escalated, due to the tight energy supply, the price of natural gas in many places in Europe hit record highs, aggravating inflationary pressures and increasing the burden on people's livelihood. Observers believe that the EU is trying to alleviate the energy crisis by imposing price limits on natural gas, but this policy cannot effectively curb the price of natural gas, and cannot fundamentally solve the energy crisis faced by the EU. ".

Price Limit Intent: Preventing Extreme Prices

The European Commission proposed on the 22nd that a natural gas price limit mechanism will be implemented from January next year. Once the fluctuation of natural gas prices in the European market meets the pre-set conditions, the mechanism will start and set the natural gas price ceiling at 275 euros per megawatt hour.

According to the proposal, the Dutch Title Transfer Center (TTF) natural gas futures price, which serves as the European natural gas benchmark price, has exceeded EUR 275 per MWh for two consecutive weeks, and the spread between the TTF natural gas price and the global LNG price has reached or exceeded for ten consecutive trading days. Above 58 euros, that price cap kicks in. Cadelie Simsson, European Commissioner for Energy, said the conditions would ensure intervention when TTF gas prices no longer reflected market fundamentals.

The price of natural gas in Europe has risen significantly in the past two years. Gas prices soared last summer as EU countries struggled to build up gas inventories ahead of the cold season. Both EU officials and the media cited the extreme prices last August as a basis for price ceilings.

European gas prices rose above 275 euros per megawatt-hour in August last year, but failed to stay above that level for two consecutive weeks, the data showed. The price of natural gas in Europe soared from 220 euros per megawatt-hour to nearly 320 euros that month, well above global LNG prices at the time, Simsson said.

Simsong explained that intervening in the market will bring risks, and the price limit policy is a trade-off, so the European Commission proposed to set a higher trigger condition. If the security of natural gas supply, market stability, etc. are threatened, the European Commission can immediately suspend the mechanism.

Price limit effect: it is difficult to suppress the actual effect

Some market analysts pointed out that the current price ceiling is higher than expected, which may fail to achieve actual results and instead affect the operation of the energy market. Nicholas Goldberg, senior manager of energy at Columbus Consulting, believes the price cap "doesn't stop European gas prices from rising too quickly." Simsong also admitted that the price limit is not a "panacea" to reduce prices, but is designed to guide market expectations.

Currently, TTF gas prices remain at around €120 per MWh. Simone Tagliapetra, a researcher at the Bruegel Institute, a European think tank, believes that the natural gas price ceiling set by the European Union is "a joke", and even at the time of the most shortage of natural gas supply this year, the trigger conditions have not been met. The price cap will do nothing but seriously damage confidence in the EU's handling of the energy crisis.

Peter Osmunsen, a professor of petroleum economics at the University of Stavanger in Norway, said that setting a price cap will weaken the EU's position as a buyer of natural gas and affect the willingness of suppliers to the EU's long-term stable supply of natural gas.

The Association of European Energy Exchanges stated that the price limit on natural gas may lead to an increase in over-the-counter transactions. Such transactions are not within the applicable scope of the price cap and are difficult to track. They may pose a major risk to the supply and financial stability of the European energy market. Even short-term interventions can have serious, unintended consequences, undermining market confidence and potentially causing irreversible damage to European energy markets.

Difficulties in price limit: internal differences are difficult to resolve

EU countries have been at loggerheads in recent months over whether to introduce a gas price cap mechanism. Countries such as Belgium, Greece, Italy and Poland strongly demanded the implementation of price caps, believing that this would help residents and businesses cushion the impact of rising prices; Germany, the Netherlands and other countries believed that this move may make it more difficult for the EU to obtain natural gas.

On the day of the meeting, some member states supported price caps, but believed that the conditions for initiating the mechanism were too harsh; some member states expressed concern about its possible impact on supply security and called for more safeguards. Czech Industry and Trade Minister Josef Sikla, who holds the rotating EU presidency, said EU energy ministers had a very different view on this and further work was needed.

Joannes Ravenna, an energy researcher at Ghent University in Belgium, believes that setting a natural gas price ceiling is purely a political tool, a compromise policy for the EU to balance the opinions of different member states, and it is difficult to achieve anything.

George Zuckerman, a senior researcher at the Bruegel Institute, said that because EU member states have different interests, financial strength, and degree of impact from the energy crisis, it is difficult to bridge the differences. The EU should abandon the idea of price caps and turn to a more effective and transparent solution to fair competition in the EU's internal energy market.

(Editors in charge: Yu Yang, Cui Yue)

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