EU countries agree on gas price cap

After months of negotiations and a succession of draft proposals, the 27 countries that form the European Union have agreed to impose a price cap on rising gas prices.  

“Another mission impossible accomplished,” said the Czech minister for trade and industry, Jozef Síkela, who chaired talks between energy ministers.

“Most importantly it was our duty towards our citizens and businesses who were waiting for us to act,” he added.

Under the agreement, the price cap will kick in when prices on the main European gas exchange, the Dutch Title Transfer Facility (TTF), exceed €180 (£157) a megawatt-hour and are €35 (£31) higher than a global reference price for liquefied natural gas (LNG) for three successive working days.

Once activated, it will remain active for 20 days but it can be suspended by the European Commission if it leads to a drop in gas supplies, forces rationing, fuels financial instability, jeopardises existing contracts or encourages power consumption. 

The point of reference is far lower than the European Commission’s original proposal of €275 a MWh during 10 days, and responds to the pressures of Belgium, Spain and Poland, which had been leading the charge for a price cap below €200. 

Over the past few months, gas supplies from Russia have declined in what a leaked European Commission draft described as a “deliberate attempt to use energy as a political weapon”. The situation is currently driving an increase in energy prices and raising concerns about energy supplies for winter.

Following the deal, Poland’s Prime Minister, Mateusz Morawiecki, tweeted: “This means the end of market manipulation by Russia and its company Gazprom.”

The EU energy commissioner, Kadri Simson, added: “We now have an effective mechanism to prevent that EU pays excessive high prices for gas that are not reflecting world prices.”

The possibility of a price cap on gas prices has long been divisive because of fears that global suppliers would bypass Europe when other buyers offer more money.

In light of the lack of consensus, the Czech presidency opted for a “qualified majority” as the voting rule to get the political agreement. This method requires that 55 per cent of member countries, or 17 out of the 27, vote in favour of a proposal. Such a vote also requires that those nations represent at least 65 per cent of the bloc’s population.

Germany was originally one of the biggest sceptics regarding the price cap proposal. However, the nation was eventually won over by the latest proposal, which included a change to a legal text on permits for new energy grids, rewritten with the aim of speeding up the deployment of renewable energy.

“No one, least of all me, has anything against low prices on the gas market. We have to bring gas prices down,” German economy minister Robert Habeck said. “We just know from previous market interventions that we must be very careful not to want to do something good and trigger something bad.”

Other sceptics were not convinced, though: the Netherlands and Austria abstained, while Hungary voted against the plans, describing the cap as a “harmful, dangerous and completely unnecessary” measure and railed against the fact it required a qualified majority and not unanimity to be introduced.

“When it turns out to have been a completely unnecessary, dangerous, damaging measure for the whole of Europe, then everyone should be held responsible,” foreign minister Péter Szijjártó said.

In addition to the deal on the gas price cap, member countries also agreed on a proposal to reduce methane emissions, to curb its negative impact on climate change and human health. 

“I welcome today’s agreement in the Energy Council on joint purchasing, speeding up permitting for renewables and the market correction mechanism,” said European Commission President Ursula von der Leyen, who heads the EU’s executive arm.

“These decisions will enable the EU to prepare for the next winter more effectively and fast-track the deployment of renewables.”

The Kremlin replied to the decision by describing the cap as “unacceptable” and claiming it was a “violation” of the market process which set prices.

Before Russia’s invasion of Ukraine, the nation supplied 27 per cent of the EU’s imported oil and 40 per cent of its gas, with the bloc paying around €400bn (£341bn) a year in return. That is equivalent to around 2.4 million barrels per day, according to data from the International Energy Agency. 

In May this year, the EU announced its intention to effectively cut 90 per cent of oil imports from Russia by the end of the year, in protest at Russia’s invasion of Ukraine.

However, the measure has resulted in rising oil and gas prices across the bloc, which have led EU officials to request reductions in nations’ electricity use by as much as 15 per cent and to call for an “emergency intervention” that would reform the bloc’s energy market to curb soaring prices. 

The new gas cap is to be implemented on 1 February and come into force on 15 February.