A source informed the Wall Street Journal on Tuesday that the European Commission (EC) presented a proposal outlining the steps companies may take to collectively buy natural gas; how natural gas can be shared between EU countries; and a temporary mechanism to cap the price of natural gas.
The TTF, the EU’s benchmark gas contract, will be the subject of the proposal’s gas price cap. The cap being proposed is not the entire price cap that the EU has been discussing and debating for months. Instead, this is only suggested as a short-term measure while the EC works to agree on a long-term baseline for LNG prices.
The plan states that before the price cap is implemented, several requirements must be satisfied, the Wall Street Journal noted on Tuesday. First among those requirements would be a guarantee that gas shipments between EU nations wouldn’t be disrupted. The other prerequisite is that the price cap must not increase gas usage within the EU. The continuation of efficient derivative markets would be the third and last thing that would result in a price cap.
The plan will be reviewed by the EU energy ministers next week as well as this Thursday.
Germany and the Netherlands are the two strongest opponents of a natural gas price cap in the EU, which is still divided on the issue. The idea put forth yesterday appears to be the result of negotiations between countries that support and oppose a price cap.
The price cap, though, is still uncertain. The fundamental concept of an emergency price cap would still require consensus among EU member states. The EC will publish the specifics of how such an emergency price cap would operate after reaching an agreement, which Germany’s objection makes improbable. Then, those specifics would also require approval from the EU member states.