By Gabriela Baczynska
BRUSSELS (Reuters) – The European Commission will propose a gas “correction mechanism” to the 27 EU states on Friday, an instrument designed to ease off price spikes but not a firm cap sought by many member countries, sources said.
The European Union has been in a tug of war over a gas price cap, with a dozen-or-so member countries calling for various versions of such a market intervention to cut prices amid an acute energy crunch that is driving record-high inflation.
But Germany, the bloc’s biggest economy, the Netherlands and the EU executive Commission say a cap would risk putting off suppliers and reduce incentives to bring down gas consumption.
The Commission told EU countries that a “comprehensive hard” cap on TTF, Europe’s main natural gas futures market used as the benchmark price, would all but fail to lower prices while also drawing legal and supply risks, according to an EU diplomat.
“The risks outweigh the benefits,” said the diplomat.
An EU official said the Commission – at a closed-door meeting with 27 national envoys to the EU starting at 0800 GMT on Friday – would outline thinking around a “market correction mechanism” instead, which would amount to “a price corridor” on TTF.
“You do not jeopardise the security of supply by putting a fixed price below the market as we are in global competition for LNG (liquefied natural gas),” said the official.
“You create a corridor for what the prices would be, hopefully reducing volatility,” added the person.
Countries including Poland and Belgium that have long campaigned for an effective tool to visibly bring down runaway prices have been angered by the Commission’s proposal, saying it falls short of a cap they wanted.
A second EU diplomat said the Commission’s proposal amounted to a price deal between suppliers and their customers that would fall between TTF and the cheaper LNG until the end of their contracts, an insurance against price swings for both sides.
“It’s not a cap in the sense that it does not clearly lower the price. It just spreads it out over time. It’s not enough for those wanting to clearly cut the price,” said the diplomat.
With details scarce but emotions running high, the disagreement risks overshadowing a Nov.24 meeting of EU energy ministers who otherwise hope to approve new policies to mitigate the energy crisis, including speeding up permits for renewable energy sources, launching joint gas purchases in the EU and working out a new price benchmark.
(Reporting by Gabriela Baczynska; Editing by Susan Fenton)