EU to propose gas price cap to avoid ‘extreme volatility’ as winter looms in energy crisis

The European Union’s executive arm plans to come up with a mechanism to curb price volatility in the bloc’s biggest gas market and prevent extreme price spikes in derivatives trading to curb the region’s energy crisis.

The temporary mechanism designed by the European Commission would impose a dynamic price limit for transactions on the Dutch Title Transfer Facility, whose main index is the benchmark for all gas traded on the continent. Commission President Ursula von der Leyen said earlier this month that the TTF no longer reflected the bloc’s energy reality after Russia cut supplies to Europe and Moscow’s gas share fell. from 40% to about 7%.

“This will help avoid extreme volatility and price spikes, as well as speculation that could lead to natural gas supply difficulties for some member states,” the commission said in a draft document seen by Bloomberg News.

The EU executive has a policy of not commenting on documents that have not been published and the draft may still change ahead of adoption due on Tuesday. As a next step, the package will be discussed by EU leaders at their summit on October 20-21 in Brussels.

The package would also include a temporary intraday price cap mechanism to prevent extreme volatility in energy derivatives markets, according to the draft. The objective is “to ensure a more robust price formation mechanism”, to protect energy companies in the region from major peaks and to help them secure their supply in the medium term.

The commission has come under increasing pressure from national governments to impose a cap on gas prices. Italy, Greece, Poland and Belgium last week proposed a limit on the region’s largest trading hubs, which would include a corridor allowing prices to fluctuate by around 5%, for example. They suggested that the price range would be regularly reviewed to reflect the level of other key energy benchmarks such as crude oil, coal and gas prices in North America and Asia.

The dynamic price limit would be put in place while the EU works on a new complementary benchmark for liquefied natural gas, according to the Commission’s draft. The new index would be launched by the end of 2022, with the benchmark expected to be available in time for the next gas storage filling season in early 2023.

A number of countries have also called for breaking the link between gas and electricity prices by imposing a price cap on the fuel used for electricity generation, an idea the commission does not plan to implement. implemented. Although such a model has depressed prices in Spain and Portugal, it carries certain risks if introduced across the bloc, he said in the draft.

The commission also plans to equip itself with tools to stimulate the liquidity of the energy markets by increasing the threshold for clearing non-financial counterparties to 4 billion euros and by expanding the list of eligible assets that can be used as collateral during a year.

To increase its resilience and influence in negotiations with alternative gas suppliers, the commission wants to strengthen its common purchasing platform, which would coordinate the filling of gas reserves. If storage reserves are depleted at the end of this winter, reaching the 90% filling target by November 2023 could be more difficult than for this winter, according to the project.

It is planned to oblige Member States to jointly purchase gas representing at least 15% of their storage and to allow companies to form a European consortium. Russian sources of supply would be excluded from participation.

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