EU weighs temporary gas price cap to counter diverging costs with US
Brussels is weighing new powers to temporarily cap EU gas prices, which have recently hit record levels compared with the US. European natural gas prices traded at the highest in more than two years this week, in part because of low temperatures and a lack of wind that has hampered renewable energy production.
They are between three and four times higher than in the US, providing a critical handicap to European companies. The European Commission is considering a cap as part of discussions about a “clean industrial deal” policy document to be presented next month, said three people with knowledge of the talks. The strategy paper should outline ways to shore up the EU’s heavy industries as businesses grapple with multiple challenges including US President Donald Trump’s aggressive trade measures and the EU’s own ambitious green transition.
Talks around mechanisms to cap prices, though still at an early stage, have drawn a backlash from industry groups which warn against damaging “trust” in the European market. Eleven groups including Europex, the association of European energy exchanges, and AFME, the financial markets lobby group, sent a letter to commission president Ursula von der Leyen on Tuesday.
The letter, seen by the Financial Times, said: “We believe this measure, if announced, could have far-reaching negative consequences for the stability of European energy markets and the security of supply across the continent.” A gas price cap would “harm the trust” in Europe’s benchmark Title Transfer Facility, the main centre for trading and settling the price of gas, the letter added. It would also “prompt the global gas community to shift towards other, unrestrained and therefore more representative reference prices, which are primarily located outside of the EU”.
The EU first proposed a similar cap in 2022, at the height of the bloc’s energy crisis that followed Russia’s steady squeeze on gas supplies to its European neighbours following the full-scale invasion of Ukraine. The cap was never enacted, as prices remained below the €180 per megawatt-hour benchmark. Building on that experience, former European Central Bank president Mario Draghi last year called for the commission to have powers to bring in “dynamic caps” for situations when the EU gas price diverges from global energy prices.
“We are studying in detail Draghi’s recommendations on this specific issue,” an EU official said. Two senior bloc officials said the plans would also include measures to prevent traders pushing up gas prices in the summer as European countries stock up on the fuel ahead of the next winter. One EU diplomat said some member states were likely to be “reluctant” about having a price cap in place. Germany and the Netherlands were among the countries that opposed the previous cap. The commission declined to comment.
Any intervention could also hamper the bloc’s efforts to stave off Trump’s tariff offensive unless the EU buys more liquefied natural gas from the US. “The emphasis in Europe should be on acquiring enough energy to run their industries and heat their houses,” said Amund Vik, senior adviser at Eurasia Group and former Norwegian state secretary for energy. “Fixing a wholesale market price cap is not going to solve that when the underlying problem is the lack of energy.”
