The bloc has shunned Russian pipeline gas in favor of pricier liquefied natural gas imports from Western suppliers
EU leaders are deliberating instituting a cap on natural gas prices, which have been surging recently, the Financial Times reported on Wednesday. Industry groups, however, have cautioned that such a measure could disrupt market stability and the security of supply.
In recent weeks, gas prices in the EU have soared, with the Dutch Title Transfer Facility (TTF), the European benchmark, hitting a two-year high of €59 ($61) per megawatt-hour on Tuesday. This has been attributed to a spate of cold weather, reduced renewable energy output, and supply concerns.
During the 2022 energy crisis, the EU introduced a price cap mechanism with a TTF target of €180 per megawatt-hour, but it never kicked in before expiring this year. In a report this past September on EU competitiveness, former European Central Bank President Mario Draghi proposed a “dynamic cap,” which he argued could discourage speculation in the spot market. He said such a mechanism could be used when EU energy prices diverge significantly from global rates.
“We are studying in detail Draghi’s recommendations on this specific issue,” an anonymous EU official told FT. While discussions are still in the early stages, sources said a positive decision could be announced next month as part of Brussels’ strategy to strengthen the EU’s heavy industries.
However, gas traders have voiced their opposition to the proposal in a letter to European Commission President Ursula von der Leyen, the report added. They warned that a price cap “could have far-reaching negative consequences for the stability of European energy markets,” as suppliers might turn to reference prices outside the reach of the EU.
The establishment of the gas spot market in the EU was intended to create a more responsive pricing system based on supply and demand fluctuations. Supplier countries have long cautioned that replacing long-term contracts with variable pricing would increase volatility. Russia, historically a major supplier of gas to the EU, has been a notable critic of the policy.
The EU committed to phasing out Russian supplies in response to the escalation of the Ukraine conflict in 2022, claiming that Moscow had “weaponized” its hydrocarbons against European consumers. Consequently, the bloc has turned to pricier liquefied natural gas (LNG) imports from countries such as the US and Norway, contributing to rising energy costs.
US President Donald Trump has called on EU nations to boost their purchases of American LNG, threatening trade tariffs for non-compliance. Von der Leyen stated on Tuesday that “unjustified tariffs on the EU will not go unanswered,” signaling potential countermeasures.
