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By Susanna Twidale, Kate Abnett and Gabriela Baczynska
(Reuters) – A proposed cap on fuel costs has divided European Union nations for months, as nations have argued about how excessive it needs to be set and whether or not the measure may hinder quite than assist Europe’s efforts to deal with an power disaster.
The purpose is to defend European households and companies from the sort of fuel value spikes skilled this 12 months, after Russia stopped the vast majority of fuel deliveries to Europe following its invasion of Ukraine in February.
Vitality costs in Europe have led to the best inflation in a long time, hiked payments for households and compelled some industries to shut.
However the EU’s 27 member nations are cut up over the proposed fuel value cap measure. Nations’ power ministers meet on Tuesday within the newest try to achieve settlement.
Here is what it is advisable know.
WHY CAP GAS PRICES?
To attempt to restrict the impression of excessive fuel costs on their economies, round 15 EU nations have referred to as for a Europe-wide fuel value cap.
European fuel costs stay comparatively excessive, though they’ve eased in latest months because the EU has agreed some emergency measures, together with obligations to fill fuel storage.
The front-month contract on the Dutch Title Switch Facility (TTF) fuel hub, which acts because the European benchmark, was buying and selling round 140 euros per megawatt hour (MWh) on Wednesday.
That compares with round 95 euros/MWh a 12 months in the past and round 14 euros/MWh two years in the past. The worth spiked to report highs of above 340 euros/MWh in August.
HOW WOULD THE EU CAP WORK?
The European Fee proposed on Nov. 22 a cap that may kick in if the front-month TTF contract exceeds 275 euros/MWh for 2 weeks and can also be 58 euros greater than a Liquefied Pure Gasoline (LNG) reference value for 10 consecutive buying and selling days.
If these situations are met any trades above the cap stage wouldn’t be accepted. The Fee may instantly droop the cap if it had unfavourable penalties, together with dangers to Europe’s fuel provide.
It might not have an effect on non-public fuel trades exterior power exchanges, which the Fee mentioned had been a security valve for crucial deliveries and had been unlikely to take over any main share of commerce.
WHAT DO EU COUNTRIES THINK?
EU nations extensively criticised Brussels’ proposal, reflecting long-held divisions between nations over whether or not to cap costs in any respect.
Belgium, Greece, Italy, Poland and different nations that desire a cap mentioned the proposed stage was too excessive and the situations to use the cap had been so strict it will by no means be triggered – with some calling the proposal a joke.
EU nations are contemplating a revised model of the EU proposal, which might decrease the cap to 200-220 eur/MWh and 35 eur/MWh above the LNG reference value, and make it simpler to set off – requiring three to 5 days at that stage, versus the ten initially proposed.
However Europe’s greatest fuel purchaser Germany, in addition to the Netherlands and Denmark are opposed to cost caps. They are saying capping costs will disrupt the conventional functioning of Europe’s power market and make it tougher to draw gasoline, if fuel suppliers divert cargoes to areas the place costs are greater than the EU’s capped stage.
WHAT DO GAS MARKET PARTICIPANTS THINK?
Market actors together with the Intercontinental Trade (ICE), which hosts fuel TTF buying and selling, have warned the Fee to not go forward with its proposal.
In a memo despatched to the Fee, seen by Reuters, ICE mentioned the proposal may drive up fuel costs as a result of liquidity suppliers had been prone to cease promoting TTF fuel futures if costs climbed even close to to the cap stage, and that the ensuing scarcity of sellers would drive costs greater.
The European Central Financial institution mentioned final week that the EU proposal may jeopardise monetary stability and probably trigger utilities to maneuver to extra dangerous non-public buying and selling to keep away from the cap – issues additionally raised by the Affiliation of European Vitality Exchanges.
The EU power commissioner Kadri Simson final week met representatives from power exchanges to debate their issues. The EU proposal consists of “robust safeguards” to keep away from unfavourable penalties, she mentioned.
NEW GAS PRICE BENCHMARK
The worth cap is designed to be a brief repair that may apply from Jan. 1 for one 12 months.
As a longer-term answer, the Fee needs to kind a brand new LNG value benchmark in Europe, and has requested EU power regulators to launch one by the tip of March.
Traditionally, the fuel value on the TTF hub has been used as a benchmark for LNG deliveries into Europe. However the main discount of Russian fuel provides this 12 months has made the TTF value extraordinarily risky, and infrequently dearer than LNG costs in different areas.
Brussels says a brand new index is required for the reason that TTF is guided by pipeline provide and not represents a market that features extra LNG, as Europe has elevated its use this 12 months to exchange Russian pipeline fuel.
The benchmark’s success would rely upon whether or not the fuel trade makes use of it.
($1 = 0.9522 euros)
(Reporting by Susanna Twidale in London, Kate Abnett and Gabriela Baczynska in Brussels; Enhancing by Barbara Lewis and Jane Merriman)
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