EU extends price cap on gas until January 2025

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The price cap, which has never been activated, was first approved in December last year as part of the bloc’s emergency response to the energy crisis that had sent gas bills to unsustainable heights and fuelled record-breaking inflation.

The introduction of the extraordinary measure became the dividing line between countries who favoured forceful market intervention, like France, Spain and Belgium, and those who, like Germany, the Netherlands and Estonia, opposed toying with the long-established rules out of fear of scaring away foreign providers.

Energy experts reviled the proposal, arguing it would do away with the free market and eradicate the signals that guide the distribution of supplies.

The debate went on for months until a consensus was reached to establish a price cap with stringent conditions for activation. The cap can only be triggered when:

• The month-ahead price at the Title Transfer Facility (TTF), Europe’s leading trading hub for wholesale gas, exceeds €180 per megawatt-hour for three working days.
• The month-ahead gas price at the TTF is €35 higher than the reference price for liquefied natural gas (LNG) on global markets for three working days.

If both conditions are met, transactions at virtual hubs will be suspended, creating an artificial limit on the price the market sets based on supply and demand.

However, the two-step process and the high price ceilings make it unlikely the cap will ever be activated. On Monday, trading at the TTF closed at €35.55, one of the lowest figures seen over the past two years.

Still, energy ministers chose to extend the measure until January 2025, arguing energy markets are still too fragile as Russia’s war on Ukraine continues.

“This will allow us to ensure the stabilisation of the energy markets, alleviate the effect of the crisis and protect EU citizens from excessive high energy prices,” said Teresa Ribera, Spain’s minister for the ecological transition, speaking on behalf of the Council.

Ministers also decided to extend until December 2024 an emergency regulation to coordinate gas purchases and cross-border exchanges in the event of shortages.

A third law, designed to speed up the deployment of renewable systems, will be prolonged until the end of June 2025.