EU Wary of Broad Gas Price Cap in Plan to Tame Energy Crisis

(Bloomberg) -- The European Union’s executive arm will outline further action to contain an unprecedented energy crunch in a plan that is set to avoid capping gas prices.

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The European Commission aims to publish Sept. 28 a document detailing future steps to ease volatility and increase trading volume in energy markets after surging prices led to ballooning margin calls, in addition to measures that the bloc could take to reduce fuel prices, according to EU diplomats.

But while some member states are calling for a ceiling on the price of gas, the Commission is unlikely to seek a broad cap, according to the diplomats.

The executive arm told member states that new rules which are being planned would take into account concerns over security of supply, seek to head off any increase in gas demand, support the internal market and stay tuned with climate goals, according to the diplomats, who asked not to be identified because the talks were private. All those issues were raised over the past several months by opponents of price caps on imports or wholesale markets.

With consumers in the EU’s 27 member states reeling from record energy bills after Russia cut natural gas supplies, governments are pushing the Commission for region-wide solutions to mitigate the crisis. They would build on a previously proposed intervention package that includes a windfall levy, price cap on lower-cost electricity and a mandatory power demand reduction target.

The planned document -- known in the EU jargon as a communication -- would give governments assurances about further measures to come as they aim for a deal on the initial emergency intervention plan at a ministerial meeting on Sept. 30. Effectively an action plan, it is usually followed by detailed regulatory proposals that need approval from member states.

The energy crisis will be a key topic during an informal meeting of EU leaders in Prague on Oct. 7, and a quarterly summit scheduled for Oct. 20-21 in Brussels.

A gas price cap is poised to reverberate during those meetings after more than a half of nations called for such a measure at the last EU energy ministers’ meeting earlier this month. But supporters of the idea differ on how it should be implemented. Italy favors a ceiling on physical and financial transactions in all EU hubs, Greece backs a cap at the Dutch Title Transfer Facility -- the continent’s key gas marketplace -- while Poland wants a price limit on gas imported from suppliers including Russia.

Nations that oppose a price cap say that such a move would effectively encourage more consumption of the fuel at a time when the EU is seeking to cut its use.

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In an internal document earlier this month, the Commission was assessing options to subject the TTF to financial supervision to avoid speculation, and to set up a complementary benchmark to ensure a better functioning market with less volatility. As a last resort in case of supply disruption, the EU could also explore temporarily pegging the TTF to the JKM Asian benchmark as a dynamic cap, the document seen by Bloomberg News showed.

The Commission was also considering establishing an EU clearing center “to receive reporting of all outright prices of LNG or other imports,” according to the internal paper. Such a move would support the bloc’s joint purchasing platform, a voluntary mechanism to boost the bargaining power of participating member states and secure lower prices.

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