Amid calls for more EU action to tackle rising energy prices, the European Commission tabled a legislative proposal to introduce a price cap on transactions on the EU’s fossil gas spot market on Tuesday 18 October as part of a new emergency gas package.
In concrete terms, if the text is adopted by the EU Council, the Commission would then be empowered to propose an EU Council Decision to establish a maximum dynamic price at which transactions on the fossil gas spot market can take place at the TTF exchange point. Set up by Gasunie Transport Services - the organisation responsible for the management, operation and development of the Dutch gas transmission system - the Title Transfer Facility (TTF) is a virtual trading point. It is currently the benchmark index usually used in the European gas market.
The details of how to set this maximum dynamic price will be worked out once the EU Council has given the Commission a mandate to move in this direction (by adopting the proposed legislation), a senior EU official said.
The text also foresees linking other EU gas hubs to this maximum price through a dynamic price corridor so as not to affect market-based intra-EU gas flows.
A new benchmark for LNG
Entitled the “gas market correction mechanism”, the capping instrument proposed by the Commission would however only be temporary, pending the development of an alternative benchmark to the TTF for EU liquefied natural gas (LNG) import prices.
According to the institution, there is a need to create a dedicated LNG benchmark, as there is “a price gap between LNG spot prices and some indexes used as a proxy for LNG import prices into Europe (in particular the TTF) and that are influenced by constraints such as the effects of pipeline deliveries and gas manipulation by Russia”.
It therefore proposes to instruct the European Agency for the Cooperation of Energy Regulators (ACER) to publish a new benchmark by the 1 March 2023, as foreseen in a draft legislative text (see EUROPE 13044/1).
Commission stalls on price cap for gas used for electricity
The other elements of the text are in line with the draft.
While the Commission has proposed a temporary mechanism for capping intraday price peaks and measures to strengthen solidarity between Member States (see EUROPE 13044/1), it continues to stall on the request by several Member States to extend the Iberian system to the whole of the EU by capping the prices of gas used to generate electricity (see EUROPE 12968/4).
“It merits to be considered for introduction at the EU level (...) It really merits to look deep into it and to see how we can make it operational on the EU level”, said the Commission President, Ursula von der Leyen.
Member States’ reactions
When the measures were announced, the Greek Prime Minister, Kyriákos Mitsotákis, and the Italian government welcomed the proposal for a gas market correction mechanism.
Luxembourg’s Energy Minister, Claude Turmes, said the Commission “is right to be cautious about a wholesale gas price cap”. “What will we do if LNG tankers are redirected to Asia?”, he asked on Twitter.
The European Parliament left out of the picture
On the European Parliament side, the Chair of the Committee on Industry, Research and Energy (ITRE), Cristian-Silviu Buşoi (EPP, Romanian), regretted the lack of a legislative role for MEPs due to the urgency procedure used by the Commission.
Arguing that the measures should be adopted as soon as possible, the Commission has recourse to Article 122 of the Treaty on the Functioning of the EU (TFEU), which allows the EU Council, on a proposal from the Commission, to decide on appropriate measures if serious difficulties arise in the supply of certain products, in particular in the energy sector.
In particular, Mr Buşoi recalled the Parliament’s wish to revise the EU Regulation (2017/1938) on security of gas supply, through the ordinary legislative procedure, in order to “reflect the possibility of EU-wide supply shocks to be included as a scenario Member States have to prepare for”.
In addition to the proposal for a regulation, the Commission presented a proposal for an EU Council recommendation on critical infrastructure protection (see EUROPE 13045/11) in response to the Nord Stream 1 and 2 gas pipeline leaks and a new flexibility in cohesion policy (see EUROPE 13045/4).
It also adopted two delegated acts aimed at alleviating the liquidity constraints faced by certain companies in the energy sector (see EUROPE 13045/10).
The package of measures will feed into discussions between the 27 heads of state or government of the Member States at the European summit on 20 and 21 October.
See the proposal for an EU Council Regulation: https://aeur.eu/f/3o6 (Original version in French by Damien Genicot)