Citibank: the gas cap? Silly and impractical…
Ed Morse, global head of commodity research at Citi, criticized the EU's new gas price cap as silly, impractical and unlikely to work in tight gas markets, as gas markets they are global and not broken down into individual countries, which means that the forces of supply and demand are more likely to prevail in determining gas prices, Bloomberg reported.
For this reason, according to Morse, the price cap could lead to gas shortages in Europe, especially in the winter months, when demand is high. Furthermore, the commodity analyst argues that the elimination of the TTF benchmark for natural gas could wreak havoc in gas pricing, especially if other existing benchmarks lack sufficient liquidity.
EU ministers finally reached an agreement on Monday to implement a gas price cap of €180/MWh, much lower than the €275/MWh limit initially proposed by the European Commission. Pro-cap countries, including Poland, Belgium and Greece, had rejected the original proposal for a cap that was too high, arguing that tackling the high gas prices the continent has been grappling with this year requires the ceiling is less than 200 euro/MWh. Interestingly, Germany also voted in favor of the price cap, despite expressing reservations that the price cap will negatively impact Europe's ability to attract gas supplies in tight and competitive global markets since price point of view.
Under the current proposal, the EU price ceiling would not fall below €188/MWh , even if the LNG reference price falls to much lower levels. However, the EU gas price ceiling would move with the LNG reference price if it rises to higher levels, while still remaining €35/MWh above the LNG price. This system is designed to ensure that the bloc can bid above market prices to attract gas into tight markets. Once activated, the limit will prevent trading on front-month to front-year FTT contracts at a price above €35/MWh above a reference price that includes current LNG price valuations.
Thanks to our Telegram channel you can stay updated on the publication of new articles from Economic Scenarios.
The article Citibank: the gas cap? Silly and impractical… it comes from Scenari Economici .
This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/citibank-il-tetto-del-gas-sciocco-e-poco-pratico/ on Tue, 20 Dec 2022 07:00:01 +0000.