EU agrees to cap gas prices, angering Russia

After months of negotiations, European Union energy ministers have agreed to a price cap for natural gas at 180 euros per megawatt hour. The issue has split the bloc, and the agreement drew an immediate warning from Russia, which has cut off most of its gas deliveries to Europe.

An employee of the Hungarian Mol Natural Gas Transporting Corp. at a gas receiving station in Vecses. Hungary was the only EU country to vote against the natural gas price cap deal on Monday. © Bela Szandelszky/AP

EU Ministers agreed to trigger a cap if prices exceed 180 euros per megawatt hour (MWh) for three days on the Dutch Title Transfer Facility (TTF) gas hub's front-month contract, which serves as the European benchmark.

The TTF price must also be 35 euros per MWh higher than a reference price based on existing liquefied natural gas (LNG) price assessments for three days.

The cap is the EU’s latest attempt to address the energy crisis mostly due to Russia’s cutting off most of its gas deliveries to Europe in retaliation for European sanctions over its invasion of Ukraine.

Energy crisis driving inflation

Gas prices briefly reached 340 euros per MWh in August. The price has since fallen, but remains historically high, trading at just under 112 euros per MWh on Monday.

The prices are pushing up energy bills and driving record-high inflation.

"We have succeeded in finding an important agreement that will shield citizens from skyrocketing energy prices," said Jozef Sikela, industry minister for the Czech Republic, which holds the rotating EU presidency.

Russia's Kremlin spokesman Dmitry Peskov denounced the cap.

"This is a violation of the market price-setting, an infringement on market processes, any reference to a (price) cap is unacceptable," he said, cited by the Russian Interfax news agency.

'Safeguards'

The cap divided European countries, which failed to come to an agreement at two previous emergency meetings.

Many countries see caps as an urgent mechanism to force down energy costs, but others, including Germany, fearing it could provoke LNG suppliers to turn to more lucrative Asian markets and leave Europe without supply.

Germany reportedly agreed to the deal after stronger safeguards were added to the cap, including it suspension if the EU faces a gas supply shortage.

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Only Hungary voted against the price cap, and the Netherlands and Austria abstained - both had raised fears that a cap could disrupt Europe’s energy markets and compromise Europe’s energy security.

The deal will be formally approved by countries in writing, after which it can enter into force. The cap can be triggered starting from 15 February 2023.

Approving of the cap, France's energy minister Agnes Pannier-Runacher said that the bloc must now turn its attention to a longer-term reform of its energy market, notably unhitching the price of gas from that of electricity.

(with wires)