EU energy regulator casts doubt on bloc’s ‘untested’ new gas price cap

The EU’s energy regulator has warned that the bloc’s new gas price cap was unlikely to lower costs for consumers or businesses if countries kept on rushing to fill their depleted reserves, calling the mechanism agreed by ministers this week “unprecedented, untested”.

Christian Zinglersen, director of the EU’s joint energy agency Acer, said he would be “reluctant to rely on this gas price cap” to prevent the types of price spikes that roiled Europe’s energy markets in the summer following Russia’s invasion of Ukraine.

The emergency cap, which set a limit of €180/MWh (per megawatt hour) on the cost of gas traded in the bloc, was sealed on Monday as Brussels stepped up its effort to prevent a repeat of the price surges that resulted from member states’ rushing to source alternative supplies ahead of winter. EU policymakers fear that further price increases could prompt social unrest and destroy industrial output.

The mechanism will be triggered when prices reach €180 and sit at €35/MWh or more above global LNG prices. Prices on the EU’s benchmark Dutch Title Transfer Facility were about €107/MWh on Tuesday, equivalent to roughly $180 per barrel in oil terms. At the height of the charge to refill gas storage in August, prices hit a record high of more than €300/MWh.

EU energy commissioner Kadri Simson said, after energy ministers approved the cap, that “with such a mechanism in place, Europe will be better prepared for the next winter season”.

However Zinglersen said that discussions over the price cap — which came after months of pressure from mostly southern European states — had used up political bandwidth in Brussels which might have better focused on other measures to quell the energy crisis.

“Obviously negotiating back and forth with the gas price cap . . . does risk crowding out these other things, which hopefully are slightly less controversial, but still super important,” he said, adding it was “a difficult creature. It’s unprecedented, it’s untested.”

One example would be to better regulate the filling of gas containers so that it happened gradually, to prevent spikes in demand in an already tight global market.

Since Russia cut supplies to the EU, demand for shipped LNG has vastly increased and affected prices. The potential for China to further ease its Covid lockdowns has prompted fears of a more challenging LNG market next year.

To leverage the bargaining power of the EU, Brussels has created a joint purchasing platform for gas, in another piece of legislation signed off by ministers on Monday.

Maroš Šefčovič, European Commission vice-president who held a meeting with 32 interested energy companies on Tuesday, said the commission’s “immediate priority is to take all necessary steps towards demand aggregation and joint tendering well before gas-storage filling season begins next year”.

Zinglersen said the EU had important lessons to learn from its efforts to quell the energy crisis, and should focus on infrastructure to ease congestion.

Transmission system operators, who manage pipelines, have benefited from a 70-fold rise in congestion charges — fees paid to grid operators when demand is greater than supply for the interconnector — due to the change of supplies coming into the bloc, he noted.

“In the past, you had infrastructure which was predicated upon huge pipeline volumes coming from east to west . . . from Russia towards greater parts of Europe, and now that is much less. And, who knows, maybe next year it will be almost non-existent,” he warned.

The International Energy Agency has said that, without Russian gas supplies, the EU could face a shortfall of 30bn cubic metres next year, almost the annual consumption of the Netherlands.