New gas price cap ends busy 2022 for EU
2022 has seen the European Union (EU) launch a remarkable array of sanctions and wider measures against Russia since its invasion of Ukraine. While the 27 member states have generally shown unforeseen unity, there have been significant intra-bloc differences along the way.
After months of discussions, for instance, the EU finally agreed on Dec 19 a natural gas price cap across the bloc. While it is an imperfect tool, born of a big compromise, it could still have real significance in 2023. The measure, due to take effect on Feb 15, will be triggered if two conditions are met. Firstly, that prices exceed 180 euros (S$258) per megawatt hour for three days on the Dutch Title Transfer Facility (TTF) gas hub’s front-month contract, which serves as the European benchmark. Secondly, if the price difference with global liquefied natural gas (LNG) prices is greater than 35 euros. Prices would have to stay above both ceilings for three days to trigger the mechanism. The cap will apply for at least 20 working days once activated. However, it could be automatically deactivated if prices fall below 180 euros for three consecutive working days.
Brussels says the new measure is designed to try to prevent extreme price swings. The 180 euros level is significantly lower than an earlier proposal by the European Commission set at 275 euros. If the new measure had been introduced in 2022, it could have been used dozens of days in August and September, when prices neared records. While benchmark European gas prices have declined in recent months, they remain significantly above average for this time of year. High prices are widely anticipated to persist into 2023 as Europe and other key markets continue to seek alternatives to Russian supplies.
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