EU warns of risks to energy security with gas price cap

On June 16, 2022, European Union flags fly outside the European Commission building in Brussel. The European Commission warned that a broad cap on gas prices could be complex to launch and pose risks to energy security, despite calls for Brussels to step in to tame high fuel prices.

After 15 of the 27 member states this week urged the EU to propose a cap on gas prices, the Commission shared a document with countries on Wednesday, analyzing various options the EU could consider to curb high gas prices.

A wholesale price cap for exchange transactions covering both liquefied natural gas and pipeline supplies could disrupt flows of fuel between EU countries, according to a document seen by Reuters.

Price signals would no longer help drive flows to regions where demand is high or supply scarce, the Commission said. It suggested that a price cap could only work if a new entity was launched to allocate and ship scarce fuel supplies between states.

The EU would need significant financial resources to ensure countries could attract gas supplies from competitive global markets where other buyers may be willing to pay prices above the EU cap, the Commission said. It didn't say where such resources could come from.

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It said that a broad wholesale gas price cap would pose a bigger risk of supply disruptions from foreign suppliers than a cap on just pipeline deliveries.

The Commission looked at other options to tackle the energy crunch, including more limited gas price caps.

The EU could cap the price of Russian gas imports, or cap the price of gas used to generate electricity as a way to tame high power prices, according to the document.

The Commission recommended the EU negotiate with reliable suppliers to reduce prices and said gas buying could help countries share extra supplies.

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The EU countries disagree about whether a broad gas price cap would help the supply crunch and energy price surge caused by Russia slashing supplies to Europe.

France, Italy, Poland and 12 other countries have urged Brussels to propose a wholesale gas price cap to help rein insurging inflation. Germany, the Netherlands, and Denmark are opposed.

There are discussions on possible gas price caps at a Friday meeting of the EU energy ministers, who are about to approve a package of measures proposed by Brussels last week, including windfall profit taxes on energy firms.