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European Energy Ministers Set to Clash Over Proposed Gas-Price Cap – WSJ

Governments seeking a limit on natural-gas prices say the bloc’s latest proposal doesn’t go far enough

Pipes at facilities of the Nord Stream 2 gas pipeline in Lubmin, northern Germany. European Union countries earlier this year agreed to voluntary plans to reduce their gas consumption. (Michael Sohn/AP)

kim Mackrael, WSJ

EnergiesNet.com 11 24 2022

European Union energy ministers are gathering to haggle Thursday over details of a new proposal from the bloc’s executive body for an emergency cap on the price of natural gas.

The meeting convenes as EU diplomats struggle to agree on a separate, international plan to cap prices paid for Russian oil around the world. 

EU gas-price debates mark the latest attempt to hash out Europe’s next steps in responding to an energy crisis spurred by Russia’s invasion of Ukraine and its throttling of natural-gas supplies to the continent. EU countries earlier this year agreed to voluntary plans to reduce their gas consumption and redistribute a portion of energy companies’ high profits and revenues, but have struggled to find a deal on whether and how to put a limit on wholesale natural-gas prices.

After repeated calls from France, Italy and roughly a dozen other countries to come up with a proposal for capping gas prices, the European Commission, the bloc’s executive body, released a plan on Tuesday for what it referred to as a price-correction mechanism.

The proposal aims to set a limit on month-ahead natural-gas prices on the bloc’s main trading hub. The cap would be set at 275 euros, the equivalent of $286, a megawatt hour, according to the commission’s proposal. But it would only kick in if prices remain above that level for two weeks and are higher than a reference level for liquefied natural gas prices by a set margin for at least 10 consecutive days.

Governments and industry groups that support a European price cap said the criteria was so strict that the proposed mechanism was unlikely to ever be used. 

“To keep our plants open, the aluminum industry needs an effective emergency measure, not a paper tiger,” said Paul Voss, director general of industry group European Aluminium. He said the EU should lower the cap and relax the criteria for using it, “so it can actually be activated during episodes of excessive gas prices.”

Others, including Germany and the Netherlands, continue to resist the idea of a price cap, saying they are worried it could lead to a shortfall in supplies.

The European Commission had also appeared reluctant to put forward a price cap. Officials argued in policy papers in recent months that such a move could divert supplies away from the EU and make it more difficult to distribute gas within the bloc. 

Based on the criteria in the commission’s proposal, the cap wouldn’t have been triggered if it had existed when prices in Europe spiked to record levels in August, analysts said. Although prices reached well above €275 a megawatt hour during that period, they didn’t remain at that level for two weeks.

Gas prices have since fallen sharply, thanks in part to a relatively mild autumn and Europe’s success in filling its natural-gas storage tanks. But they remain well above historic averages.

Energy ministers are expected to debate the gas-cap proposal during their meeting on Thursday, but diplomats said they don’t anticipate a quick decision.

Ministers are also set to discuss other recent proposals for dealing with the bloc’s energy crisis, including a plan that would allow for joint purchases of natural gas and another that lays out how countries should share energy supplies in an emergency. A separate plan for speeding up permitting for renewable energy projects is also on the agenda. 

Write to Kim Mackrael at kim.mackrael@wsj.com

wsj, 11 23 2022

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