Citi Commodity Analyst: EU Gas Price Cap Numbers Are Silly
OilPriceDec 19, 2022
EU energy ministers on Monday announced that they've agreed on an energy price cap of €180 ($191) per megawatt hour if it exceeds that level for more than three consecutive business days on the bloc's benchmark Dutch Title Transfer Facility (TTF) energy exchange.
Germany, which previously raised concerns over a cap's impact on attracting suppliers in a competitive global market, voted in favor of the cap. If implemented, it will take effect on Feb. 15 and won't initially apply to private over-the-counter trades, only trades on the exchange.
Given that gas markets are global and don't fit neatly into individual countries or blocs, this price cap is unlikely to have a positive impact on the energy crisis. While exchanges other than the TTF engage in competition as demand soars over the winter, Europeans will be left in the dark, most likely figuratively and literally.
While some have understandably voiced concerns over how this cap may impact the market, the agreed-upon proposal already includes multiple safeguards, including suspending the cap if the EU faces a gas shortage. The cap is also only a year in length and will also undergo another review by regulators to ensure its benefits outweigh its risks.