EU executive to outline gas price ‘correction mechanism’ on Friday -sources

By Gabriela Baczynska

BRUSSELS (Reuters) -The European Commission will propose a gas price “correction mechanism” to the 27 EU states on Friday, a measure aimed at easing price spikes but not the firm cap sought by many countries, according to sources and documents seen by Reuters.

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 measure 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 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.

‘TEMPORARY INTERVENTION’

Countries including Poland and Belgium that have long campaigned for a tool to reduce runaway prices have been angered by the Commission’s line, saying it falls short of the cap they want.

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 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.

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 renewable energy permits, launching joint gas purchases in the EU and working out a new LNG price benchmark.

With the Commission’s input, the diplomats on Friday will discuss a draft decision by the ministers, which was last updated on Nov. 8 and seen by Reuters on Thursday.

It said that “a targeted and temporary emergency intervention in the TTF spot prices may be needed in order to avoid excessive price episodes” after other measures fail.

“In order not to affect intra-EU flows which should continue to allow for natural gas to go where it is most needed, other (European) Union gas trading hubs may be linked to the corrected TTF spot price via a dynamic price corridor,” it read.

(Reporting by Gabriela Baczynska Editing by Susan Fenton and Mark Potter)