Dhe Berlin resistance was futile. The EU will cap gas prices from mid-February. As soon as it exceeds the threshold of 180 euros per megawatt hour and moves away from the world market price for LNG, the cap comes into effect.
Czech EU Council President Jozef Síkela celebrated that the EU had finally fulfilled its duty to the people and companies who had been waiting for lower prices for months. The markets also played along. After the agreement, the price fell to less than 110 euros.
So was Berlin wrong? Do the markets just need a clear signal that the EU is not prepared to pay any price, as the majority of EU countries have been saying for months? It could be a dangerous mistake.
A lid with holes
Sure, prices on the stock exchanges tend to swing to extremes in times of uncertainty. However, the record prices from this summer of up to 350 euros per megawatt hour were not a whim of the speculators. There were fundamental reasons: the EU states, above all Germany, bought the market empty to fill their storage facilities. A very high demand met a scarce supply, so the prices rose sharply. The much-vaunted signal that the EU would not pay any price would only have had one effect: that countries like Qatar or the USA would no longer deliver.
In order to prevent such supply bottlenecks, the price cap contains a number of security mechanisms. It will be automatically deactivated if there is a gas shortage in the EU. It can also be suspended if consumption increases or the trading volume on the gas exchanges collapses.
The price cap is not fixed, but fluctuates with the LNG world market price. In addition, it only applies to stock exchange trading, but not to direct contracts between suppliers and customers. It’s just a lid with holes, criticize some supporters.
However, it remains a cap and an intervention in a highly complex, previously well-functioning market. It is already causing risk premiums rather than lower gas prices. The moment of truth may come as early as April. Then the storage tanks will have to be refilled and, because Russia is no longer delivering, the gas will be even scarcer than this year.
It is only to be hoped that the EU will quickly end the price cap experiment if the suppliers, despite all the security mechanisms, turn elsewhere.
