Factbox: EU countries agree on gas price cap

December 20, 2022, 5:07 pm

MOSCOW – European Union (EU) countries agreed on a price cap for natural gas on Monday, which will be introduced if the price of fuel on the stock exchange exceeds 180 euros per megawatt-hour, or about 1,850 euros per 1,000 cubic meters, an official with the Council of the EU reported.

If the threshold value is exceeded, the mechanism will be activated automatically starting Feb. 15, 2023.

TASS collected the main facts known about the agreement.

Cap above market price

• The EU-agreed price cap is lower than the one which was initially proposed but higher than current market prices. On Monday afternoon, the price of January futures on the TTF hub in the Netherlands was about 109 euros per megawatt-hour, or about 1,100 euros per 1,000 cubic meters. The last time natural gas in Europe cost 180 euros per megawatt-hour and more was at the end of September.

• The European Commission proposed using the cap if gas became more expensive than 275 euros per megawatt-hour. This was opposed by several countries: Belgium, Greece, Italy, Slovenia, and Poland wanted to set the cap at about 160 euros.

• Some countries, including Hungary and Germany, opposed the introduction of the new mechanism. Nevertheless, Berlin on Monday supported the initiative, according to Reuters.

Working mechanism

• The price cap mechanism will be activated automatically starting Feb. 15, 2023, if the cost of gas at the TTF hub exceeds 180 euros per megawatt hour for three working days and is 35 euros higher than the average cost of liquefied natural gas (LNG) on the world market.

• The price cap will be dynamic – if it is activated, transactions in which the price of gas is higher than the estimated price of liquefied natural gas (LNG) (based on a basket of major international hubs plus 35 euros per MWh), will be subject to a ban.

• This cap will be in place for a minimum of 20 business days, but if the "dynamic rate cap" is below 180 euros per MWh for three consecutive business days, it will automatically be terminated. In addition, the European Commission will be able to lift it in case of a gas shortage.

• Also, the cap may be suspended if there are risks to the security of the energy supply, financial stability, gas pumping within the EU, or risks of increased demand. In particular, the mechanism will be lifted if gas demand grows by 15 percent per month (or by 10 percent within two months), as well as in the event of a significant reduction in LNG imports.

Validity periods

• The European Commission has until Nov. 1, 2023 to evaluate the operation of the mechanism, taking into account the situation with gas supplies. Based on the results, it may suggest extending it.

Russia's position

• Commenting on the introduction of the cap on gas prices, Kremlin spokesman Dmitry Peskov called the decision an unacceptable encroachment on market processes. Peskov said Moscow will need time to "thoroughly weigh the pros and cons" and prepare its response.

• Russian representatives have repeatedly warned the European Union against imposing a cap on gas prices, although the proposal to limit the price of only Russian gas was ultimately rejected.

• On September 7 (when the EU was still discussing limiting the cost of only Russian gas), Russian President Vladimir Putin called attempts to limit the cost of gas in Europe by administrative measures stupid and "a non-market decision that has no prospects."

• In October, Russian Deputy Prime Minister Alexander Novak, who oversees the fuel and energy complex, said the countries that introduce a price cap will be the first to suffer from it. Chief executive officer of Gazprom Alexey Miller said the introduction of this mechanism could lead to a cessation of supplies from the Russian side. (TASS)