EU considers temporary gas price cap to address diverging energy costs

The European Union is considering introducing temporary measures to cap gas prices amid concerns over the widening gap between European and US prices.

European natural gas prices have recently surged to their highest levels in more than two years, driven by cold temperatures and low wind energy production, Caliber.Az reports referring to international media.

As a result, prices are currently three to four times higher than in the US, placing European companies at a competitive disadvantage.

The European Commission is exploring the possibility of implementing a gas price cap as part of an upcoming "clean industrial deal" policy document, which is expected to be presented next month. This document aims to address challenges faced by EU industries, including US President Donald Trump’s trade policies and Europe’s ambitious green energy transition.

Although discussions are in the early stages, industry groups have voiced opposition, arguing that a gas price cap could undermine trust in the European market. Eleven organizations, including Europex (the association of European energy exchanges) and AFME (the financial markets lobby group), have sent a letter to European Commission President Ursula von der Leyen, warning of the potential long-term damage to market stability and energy supply security across the continent.

The proposed cap is seen as a way to address the growing divergence in gas prices, especially since EU gas prices have reached levels that threaten economic stability. However, critics argue that it could prompt the global gas market to shift towards other pricing benchmarks, undermining Europe’s energy market and its position in global trade.

The EU previously proposed a similar cap during the 2022 energy crisis caused by Russia’s invasion of Ukraine, but the cap was never implemented because prices remained below the €180 per megawatt-hour threshold. Last year, former European Central Bank president Mario Draghi suggested that the Commission should have powers to implement "dynamic caps" in situations where EU prices diverge from global prices. EU officials are currently studying Draghi’s recommendations.

In addition to the potential price cap, the Commission is also considering measures to prevent traders from inflating gas prices during the summer as countries stockpile for the winter months. However, some EU member states, such as Germany and the Netherlands, remain hesitant about implementing a price cap.

Any intervention could complicate the EU’s efforts to avoid US tariffs, especially if the bloc decides to increase imports of liquefied natural gas (LNG) from the US. Amund Vik, senior adviser at Eurasia Group and former Norwegian state secretary for energy, emphasized that the focus in Europe should be on securing enough energy for industries and households, rather than fixing wholesale market prices.

By Tamilla Hasanova