European gas price cap plan floated as EU prepares its version

(Bloomberg) – As some European Union nations demand a price cap on natural gas, one member is offering a possible solution: a temporary mechanism to curb excessive price swings in all the bloc’s trading venues.

Slovenia suggested that the EU could create a tool that could involve a maximum price and two trading ranges, according to diplomats. The daily mechanism would keep gas prices moving in a certain corridor around the previous day closing price. The longer-term mechanism, the range would be set around the average closing price of the preceding 30 trading days and applied on a rolling basis.

The proposal is an effort to jump-start the debate in Brussels over the controversial issue of reining in gas costs after a spike triggered by reduced supply from Russia. A majority of member states, led by Italy, Poland, Greece and Belgium are demanding a price cap, but nations led by Germany and the Netherlands called for caution.

The European Commission — which drafts legislation in the bloc — is trying to find a way to limit prices of the fuel while avoiding risks to supply security of supply and ripple effects in the internal energy market. EU leaders last month unanimously called on the executive to propose measures including a temporary “dynamic price corridor” on gas transactions, but its structure was left vague.

Slovenia’s proposed mechanism would be used for each product traded on organized markets in the EU, said the diplomats, who asked not to be identified because the talks are private. During the period of its application, the two trading limits would also have to be introduced to all wholesale transactions in the EU, irrespective of how and where they are carried, according to the Slovenian proposal.

The EU’s executive arm pledged last week to offer a detailed outline of a proposal for a market correction mechanism before an emergency meeting of EU energy ministers on Nov. 24, when they are due to debate a broader emergency package to contain the crisis and a draft regulation to accelerate permitting for renewables.

The details of the commission’s price-control mechanism could be shared with member states as a so-called non-paper by Wednesday, when ambassadors representing EU nations are scheduled to meet, according to the diplomats. A legislative proposal could follow in the next step.

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