Brussels The Czech negotiator is already talking about a “cap camp”, a “cover camp”, that’s how often the EU energy ministers have sat down. Tuesday’s meeting was the tenth since the beginning of the war. It lasted nine hours and ended without the group agreeing on a law.
It is true that agreement was reached on a number of details and how the price cap works. However, it is still unclear at what height the lid should be. The discussion initially moved between 100 and 275 euros per megawatt hour, then between 160 and 220 euros. Czech Minister Jozef Sikela, who is leading the round, finally saw no chance of reaching an agreement within this corridor.
It is now clear that the mechanism should be triggered if the market price is above the value that has yet to be agreed for three days and at the same time is at least 35 euros above the world market price for LNG, i.e. liquid gas, for three days. In addition, further security mechanisms were agreed upon, through which the price cap will be suspended again in the event of undesired market reactions. It is also now clear that bilateral transactions (“over the counter”, OTC) should not be affected by the cap.
Another meeting is scheduled for Monday to settle the question of the price. Until then, ministers have time to coordinate within their governments to create new space for an agreement.
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The federal government considers a price cap to be wrong. Economics Minister Robert Habeck, however, was willing to accommodate the other side. It’s about ensuring security of supply “and still seeing that Europe stays together,” said Habeck.
German economy warns of price caps
In fact, concerns about security of supply are taken less seriously in other countries than in Germany, while a signal is expected there that citizens are being protected from excessive prices. From the point of view of many governments, the high gas prices last summer cannot be explained by normal market mechanisms, but were artificially driven up.
Before the meeting, the German economy had once again warned against a price cap: “Liquid gas flows could be diverted to other regions of the world,” said Deputy BDI General Manager Holger Loesch. “In contrast to the German gas price brake, the concepts for an EU gas price cap are not based on the costs for the end consumer, but directly on the wholesale level. This programs far-reaching market distortions, but in particular physical natural gas bottlenecks for filling the gas storage facilities in 2023/24 because important energy-saving incentives are lost.”
>> Read here: Why the market works better than any gas price cap – a comment
An agreement on Monday would clear the way for two laws that have so far been blocked. Although there is already a political agreement, several states had rejected a formal decision to enforce the gas price cap.
One of these laws is intended to regulate solidarity among EU countries in the event that gas becomes scarce. Many states are dependent either on the storage facilities in other countries or on their import infrastructure to supply themselves with gas. Should individual states impose export restrictions during a worsening crisis, gas flows through Europe could quickly come to a standstill. This is to be prevented with the new law.
The other law regulates the joint procurement of gas. The states undertake to procure at least 15 percent of the gas that they store for the winter via a joint purchasing platform. This is intended to prevent the EU states from outbidding each other and thereby driving up prices on the market. In the summer of 2022, this had contributed to a massive increase in gas prices.
>> Read here: Qatar’s mega LNG deal with China puts pressure on Germany
A gas price cap based on the Iberian model seems to be off the table for the time being: Spain and Portugal are subsidizing the gas used to generate electricity, thereby lowering the electricity price. Many countries had asked for this model to be applied across Europe. Commission President Ursula von der Leyen had joined this demand in the meantime. However, EU Commission officials warned against such a measure. In Spain, it has been shown that this increases gas consumption and subsidized electricity flows abroad, experts had warned.
This is also made less likely by the fact that Sweden will take over the Council Presidency from January 1st and will therefore be responsible for the agendas of the ministerial meetings. The Scandinavians are among the critics of market interventions, while the previously incumbent Czechs advocated an effective price cap and were not afraid to repeatedly schedule special meetings.
More: How Europe redirects its gas flows – and becomes independent of Russia