EU Commission to propose potential 'dynamic' gas price cap

European Union flags flutter outside the EU Commission headquarters in Brussels
European Union flags flutter outside the EU Commission headquarters in Brussels, Belgium, September 28, 2022. REUTERS/Yves Herman/File Photo

BRUSSELS, Oct 17 (Reuters) - The European Commission is set to propose this week a last-resort "dynamic" price cap for natural gas in the European Union and mandatory limits on the degree to which traded prices can fluctuate in a single day, according to a draft proposal.

The EU is seeking to wean itself off Russian fossil fuels, but Moscow has in past months largely cut the bloc off from its gas pipelines, spiking prices and leading to supply concerns.

Under the proposal seen by Reuters, which will need to be agreed by EU governments, the European Agency for Cooperation of Energy Regulators (ACER) would be charged with producing a price benchmark by March 23 for liquefied natural gas, of which the EU is buying more.

The Commission is recommending potential interventions in the Dutch Title Transfer Facility (TTF) price that is widely used in Europe for contracts and hedging.

The EU executive would "as a last resort" propose establishing a market "dynamic" price at which natural gas transactions can take place in the TTF spot market under specific conditions.

The measures should not affect security of supply, nor lead to an increase in gas consumption, nor affect the orderly functioning of energy derivative markets, the draft said.

EU governments would have to agree to this and it would last for no longer than three months. Other EU gas trading hubs would be linked to the corrected TTF spot price via a dynamic price corridor.

The proposal is far short of the EU-wide gas price cap 15 EU countries have called for, but opposed by others such as Germany, Austria and the Netherlands that argue caps could lead to a gas shortage and fail to incentivise energy saving.

"As a result of falling gas prices, this proposal shows that the appetite for ambitious reform, such as a price cap, is fading," said Georg Zachmann, an energy expert at think tank Bruegel.

EU leaders are set to debate options later this week.

The proposals will need approval by EU governments, which have bickered for more than a month since the Commission first proposed a price cap only on Russian gas in early September.

The Commission's draft proposal also says EU trading venues should by Jan. 31 have to set a limit on the degree to which front-month energy derivatives can move up or down in a single day.

It also includes the idea of joint gas purchases, a solidarity mechanism to avoid sharp disparities in supply across the bloc and a push to reduce gas demand.

Reporting by Giuseppe Fonte; additional reporting by John O'Donnell, writing by Philip Blenkinsop, editing by Andrew Cawthorne and Susan Fenton

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