the European Commission proposes a “dissuasive” cap

It’s more of a tool “Deterrence” designed to reduce large spikes in volatility. 93484074/artjazz – stock.adobe.com

The proposal will be discussed by EU energy ministers in Brussels next Thursday

The European Commission on Thursday presented the mechanism intended to cap gas prices in the European Union, which was presented to member states the day before. This proposal, eagerly awaited by the 27, has long been demanded by a number of countries to protect individuals and businesses from rising energy prices. They risk becoming disillusioned, however, as the European executive is extremely careful not to alienate other states – notably Germany – who fear the repercussions of such a supply ban.

Brussels also wants to avoid causing disruption in an extremely complex and already very disrupted market. “Ideally, (this mechanism) never be activated because the market would have understood that Europe is not always ready to pay any price. also warns a European official.

It’s more of a tool “Deterrence” designed to reduce the huge spikes in volatility, as strictly speaking an intervention mechanism in the markets, the same official points out.

Specifically, the cap would not relate to the OTC market but to the one-month contract of the Rotterdam TTF, an index used as a benchmark for natural gas that determines retail selling prices. It would intervene as soon as two conditions are met at the same time: when the market price exceeds a ceiling (which the Commission has yet to announce) and when the price deviates too much from world market prices. Once the mechanism is activated, orders placed on the TTF at a price above the cap set by Brussels can no longer be executed.

The implementation of the cap would therefore be automatic, while Member States had asked to be involved in the decision. In a document, the European executive asserted that there would be none “no delay between price increase and activation” of the mechanism. The cap would be deactivated once prices are back to “normal”. “We’re not thinking of a mechanism that could be activated 35 or 40 times a year!” angers an EU official. Acer (Association of Energy Regulators), the European Central Bank and ESMA (European Securities and Markets Authority) would assist the Commission in monitoring prices and spreads observed globally.

The Commission, fearing the negative impact of a potential price cap, again warns member states of the need for a cap higher than global LNG prices and the risk of suppliers holding back supplies until the mechanism is deactivated. If supply bottlenecks are observed, the upper limit would be suspended “instantly”.

The Commission’s proposal will be discussed by the European energy ministers at a new special meeting next Thursday in Brussels.

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