European Gas Declines After Price Cap Proposal

A ship works offshore in the Baltic Sea on the natural gas pipeline Nord Stream 2 from Russia to Germany, on Nov. 11, 2018. Bernd Wuestneck/dpa via AP

Natural gas prices in Europe fell after the region’s leaders agreed on measures to contain the energy crisis, including a proposal to set price caps.

European Union (EU) leaders called on the European Council and the European Commission to “urgently” submit decisions regarding “a temporary dynamic price corridor on natural gas transactions to immediately limit episodes of excessive gas prices,” according to a press release on Oct. 21. Dutch TTF gas futures were down by 10.89 percent, as of 11:22 a.m. EDT. In the year between Oct. 22, 2021, and Oct. 20, 2022, Dutch TTF gas prices have risen from €43.55 to €127.15, a jump of almost 300 percent.

The European Council and the European Commission are also expected to submit a new complementary benchmark by early next year that “accurately reflects” conditions of the gas market. They have to provide a temporary EU framework to cap the price of gas in electricity generation.

The organizations also must suggest measures to improve how energy markets function so as to eliminate factors that “amplify” gas price volatility, increase market transparency, and alleviate liquidity stress.

EU leaders are seeking proposals for “voluntary joint purchasing of gas” among nations in the region as well as “energy solidarity measures” to deal with gas supply disruptions at the Union, regional, or national levels.

While speaking to reporters, Dutch Prime Minister Mark Rutte expressed doubts about the price-cap measures, saying that it is “very difficult to see” that such caps would be ready within the next few weeks.

“We really have to assess all the pros and cons and the ramifications,” he said, according to Bloomberg. “If it would not fulfill the requirements, for example, it could also lead to a higher base price or gas sailing away from Europe.”

Europe’s Gas Dependence

Europe is heavily reliant on Russia for gas, which makes it difficult for the region to completely extricate itself from this dependence. In 2021, Russia supplied EU nations with 40 percent of their required natural gas, with the region’s biggest economy, Germany, also the largest importer.

However, Russia has been cutting down on its gas supplies to the region. “Russia has created gas shortages as a way of weakening Europe’s determination to maintain sanctions against it,” David Fyfe, chief economist with research firm Argus Media, said to BBC.

During the EU Ambassadors’ Annual Conference on Oct. 10, Josep Borrell, high representative of the European Union for Foreign and Security Policy, warned that the region’s prosperity has been based on cheap energy from Russia. However, Russia can no longer be depended upon, he noted.

“The best energy is the one that you produce at home,” and this involves a “strong restructuring” of the European economy,” Borrell stated.