EU Considers Gas Price Cap in Russian Supply Disruption Scenario

Authored by ca.finance.yahoo.com and submitted by Watchd0ggy
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(Bloomberg) -- The European Union could cap natural-gas prices to avoid “unbearably high” costs if Russia, the region’s biggest supplier, significantly limits or cuts off the flow.

The European Commission is mapping out energy-market intervention measures as part of a package to replace Russian gas imports after the invasion of Ukraine. It is set to recommend agreeing on common principles to prepare for a wider disruption and a regional or EU-wide emergency, where gas markets can no longer match supply and demand, according to a draft document seen by Bloomberg News.

Concern over gas supplies are weighing on European energy markets as Moscow retaliates to EU penalties with its own curbs against some gas companies in the region. Uncertainty over how EU-based importers should pay for Russian gas to avoid a breach of sanctions have also been a headache for weeks.

Introducing a maximum regulated price in an emergency would be limited to its duration and the market price should be used as long as possible, the commission said in the draft. The document may still change before the adoption scheduled for May 18.

“One possibility would be to limit price formation during this disruption scenario by capping the price on European gas exchanges, but such a price cap can in general be introduced in different ways and can intervene at different levels of the gas value chain,” the commission said in the document. “If compensation is foreseen, this type of intervention could require excessive public financing.”

The EU has a policy of declining to comment on draft proposals.

The commission is also set to give the green light for short-term measures to cushion consumers and companies from high energy prices. They include:

Allowing governments to extend retail price regulation for natural gas

Emergency liquidity support for commodity traders confronted with high margin calls as a result of significant market volatility

Revising limits applied to short-term volatility in internal trading rules of European gas exchanges

The measures are meant to be temporary and not apply beyond the beginning of June 2023.

oldagecynicism on May 15th, 2022 at 01:33 UTC »

We can ration by price, or just straight up ration. Either way, not everyone is going to get what they want.

MMcDeer on May 15th, 2022 at 00:06 UTC »

Price caps definitely work and do not at all go against the very basics of Economics 101.

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