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Gas, because the Commission’s price cap is useless

1 year ago babelfish

Gas, because the Commission's price cap is useless

The European Commission has proposed a much criticized gas price cap: not only does it set a high value, but it has such stringent conditions that it is almost impossible to use it. The facts and comments of the experts

On Tuesday, the European Commission proposed a cap on the price of natural gas of 275 euros per megawatt hour for month-ahead derivatives traded on the Title Transfer Facility, the platform of the Amsterdam Stock Exchange which serves as a reference for the continent.

THE MALUMOURS OF THE MEMBER STATES

If approved by the member states of the Union, the gas price cap will enter into force on January 1st and will remain there for a year. The proposal will be discussed this Thursday during the meeting between the various national energy ministers, but according to Reuters sources it would not enjoy particular support due to the threshold level set.

Regardless of the value, however, the very idea of ​​a price cap is not shared by all European countries : in the group of those in favour, who consider it necessary to contain high energy costs and inflation, there is Italy ; among those against, who fear it could stimulate consumption and have negative repercussions on supplies, there is Germany.

HOW THE COMMISSION PRICE CAP WORKS

Energy Commissioner Kadri Simson explained that the price cap developed by the Commission will apply if futures prices (contracts for the exchange of gas at a future date) on the FTT exceed €275 per MWh and, at the same time, if the difference between the value of the ceiling and the international prices of liquefied gas (LNG) will exceed 55 euros for ten consecutive days.

Simson added that the Commission's mechanism was "carefully designed to be effective, without jeopardizing our security of supply, the functioning of EU energy markets and financial stability". He specified that the price cap does not represent an intervention aimed at keeping the gas market at an artificially low level.

HOW MUCH GAS IS EXCHANGED FOR TODAY

The month-ahead gas contract is currently traded on the TTF at €119.8/MWh; on 26 August it had exceeded 340 €/MWh, a record.

THE CRITICISM OF DIPLOMATS

Anonymous diplomatic sources interviewed by Reuters let it be known that the Commission's proposal displeases the countries in favor of introducing a price ceiling. First of all, they expected a lower threshold, around 150-180 €/MWh instead of 275, and an easier mechanism, which would allow the price cap to "activate" even several times in a year. The required conditions are instead very stringent, because they must occur simultaneously and be maintained for several days.

"We will have a cap on paper that in practice will never be triggered," admitted a European diplomat heard by the agency.

TAGLIAPIETRA: A “TOTALLY USELESS” PRICE CAP

Simone Tagliapietra, energy-climate analyst at the Bruegel think tank , told Il Foglio that the Commission's price cap proposal is "totally useless" due to its conditions, which would have prevented its use even last August, when the price of gas exceeded 340 €/MWh.

According to Tagliapietra, the member states "would do well to abandon" this mechanism, "forget about the caps " and focus directly on the definition of a different instrument for mitigating the economic and social impact of the energy crisis.

According to the analyst, "Europe does not need a cap , which could do more harm than good, but a European fund for the energy crisis aimed at supporting those countries which – like Italy – have little space tax to support vulnerable households and businesses, encouraging the reduction of demand".

A viable option could be a common debt fund, on the model of SURE: it was proposed by the commissioners for the economy and for the internal market, respectively Paolo Gentiloni and Thierry Breton, but rejected by the president of the Commission, Ursula von der Leyen .

“A ROOF THAT IS NOT A ROOF”

On Twitter, Javier Blas, a Bloomberg journalist who deals with energy, defined the Commission's proposal as "a cap designed not to be a cap ", that is, not to limit prices.

“The ceiling is set at €275 per MWh,” he writes. “But, and this is the important point, this price will have to be exceeded for two consecutive weeks”.

“Even at the height of the EU gas price crisis in August, when prices briefly reached an all-time high of €342 per MWh,” he adds, “they did not stay above €275 per MWh for two consecutive weeks . So the roof would not have been activated."

DID THE COMMISSION INTEND TO PLEASE EVERYONE?

Marco Giuli, researcher at the Brussels School of Governance, scientific adviser to the IAI and energy expert, wrote that, through its proposal, the Commission has tried to satisfy both the states in favor of the cap and those against: the former have obtained, although only on paper, a ceiling on prices; the latter obtained an inapplicable and therefore de facto non-existent mechanism.

IS THE EU AVOIDING THE REAL PROBLEM?

Energy analyst Francesco Sassi defined the Brussels measure as "a misstep by the Commission, which loses credibility, not wanting to address the crux of the situation, i.e. inter-European competition and between Europe and the rest of the world at the basis of extreme prices and highly deficits for entire industrial sectors and final consumers in the commercial and population”.

In essence, Sassi emphasizes the root cause of the gas price crisis: the imbalance between supply and demand.

This is a machine translation from Italian language of a post published on Start Magazine at the URL https://www.startmag.it/energia/proposta-price-cap-gas-commissione-critiche/ on Wed, 23 Nov 2022 08:46:21 +0000.