The European Commission is planning to propose a dynamic price cap for natural gas in the European Union but only as a “last resort”, according to a draft proposal that also recommends implementing limits on the degree to which prices can fluctuate daily.
European energy markets have been thrown into chaos as a result of Russia’s February 24th invasion of Ukraine, as countries seek to move away from Russian fossil fuels. Meanwhile Moscow has weaponized the gas supplies many EU nations still heavily depend on, spiking prices and raising fears of shortages through the winter.
Policymakers have had a difficult time drafting a proposal that will be acceptable to all 27 countries in the union, and the measures to be put forward represent somewhat of a compromise. A bloc of 15 EU countries had called for much stronger measures than those included.
Under the proposal, which needs to be agreed by EU governments, the European Agency for Cooperation of Energy Regulators (ACER) would be responsible for producing a price benchmark by March 23rd for liquefied natural gas.
The proposed benchmark would apply the Dutch Title Transfer Facility (TTF) price that is widely used in Europe for contracts and hedging.
The proposal also says that a market dynamic price could be set “as a last resort” under certain conditions, but did not offer further details of what conditions would need to be met to implement this measure.
The proposals would be set to last for a maximum of three months. It is unknown whether all EU member states will agree, but it is believed to be acceptable to the nations opposed to an EU-wide gas price cap, including the Netherlands, Germany and Austria.