The European Union could soon have a price cap to bring soaring gas prices under control, but only as a measure of last resort to contain extreme speculation and volatility in the markets.
As part of its next emergency package to tackle the energy crisis, the European Commission plans to unveil a "temporary" and "dynamic" price limit that would apply to the transactions taking place at the Dutch Title Transfer Facility (TTF), Europe's leading gas hub.
"The time has come to put in place such mechanism," the Commission says in a document seen by Euronews.
The TTF is a virtual marketplace where shippers and buyers trade gas supplies, both for immediate delivery and future provisions. Since Russia launched the invasion of Ukraine, the platform has seen abrupt ups and downs in gas prices, as uncertainty over supplies fuelled speculation.
In August, the TTF reached an all-time record price of €339 per megawatt-hour, driving electricity bills along the way. After the peak, prices began a steady downward trend, hitting a three-month low in early October. Trading on Monday morning hovered around €133 per megawatt-hour.
The European Commission's proposed price cap would not be permanently active but rather triggered only "when needed," that is when the price traded at the TTF exceeds the price set by the mechanism.
The Commission's draft document does not specify the price range, which is expected to be the key question around the untested measure.
The TTF already features "circuit breakers" that protect prices from suffering steep variations within short periods of time, although these have failed to prevent the swerves seen this year.
The Commission also plans a separate cap to curb price spikes of energy derivatives, the financial assets that companies use to secure energy supplies ahead of time.
In parallel to these two caps, the executive will develop an alternative benchmark to the TTF that would be exclusively dedicated to the trading of liquefied natural gas (LNG), a highly flexible commodity that has allowed the bloc to offset some of the pipeline gas supplies that Russia has cut off.
Notably, the leaked document reveals the executive led by Ursula von der Leyen is not yet ready to move forward with a broader – and riskier – price cap that would apply to the gas used for electricity generation, a proposal that von der Leyen herself hinted as a potential next step.
As the last fuel needed to meet all power demands, gas determines the final price of electricity. A growing number of member states want to decouple these prices and put an end to what they call contagion effect.
"Introducing a price cap for gas that is used for electricity generation has brought down prices in Spain and Portugal, but it bears some risks if introduced across the EU," the Commission says, referring to the state aid scheme used in the Iberian peninsula.
"EU member states are diverse when it comes to their energy mixes, connections and power systems. A solution needs to be designed that works for all of them and that is in line with our wider goals: not increasing gas consumption and managing flows beyond the EU's borders."
The Commission's tempered response is set to be welcomed by Germany and the Netherlands, who have opposed radical market intervention, but met with dissatisfaction by Italy, Belgium, Poland and Greece, the leading advocates for a wider price cap.
Last week, Kadri Simson, European Commissioner for energy, said a price cap required "maximum consensual support" and noted not all member states were on board.
The divisions among capitals are expected to be laid bare during a two-day meeting of EU leaders later this week, where the energy crisis will be the top topic on the agenda.
Besides the TTF emergency mechanism, the Commission suggests additional measures that can help alleviate energy bills and secure enough supplies.
The executive wants to establish a joint procurement scheme that would allow member states to buy gas as one single client and use their collective purchasing power to lower prices.
"Joint purchasing will facilitate a more equal access to new suppliers and international markets and give more negotiating weight to European importers," the Commission's document says. "Russian supply sources will be excluded from participation in the platform."
The executive warns the bloc will suffer a gap of "uncontracted demand" of up to 100 billion cubic metres (bcm) per year in case of a total interruption of Russian gas. (The EU's pre-war annual consumption was around 400 bcm of gas, although savings plans will further reduce this amount.)
Joint purchases, the Commission says, will be particularly useful next year, when member states will begin the expensive and arduous process to refill their underground storages for the 2023-2024 winter.
Brussels also urges countries to accelerate the signing of so-called "solidarity agreements," which can ensure gas flows across borders when supplies are running low and reach countries in need.
"Only 6 bilateral solidarity agreements between member states have been signed, out of the 40 possible ones," the draft document reads. "This is too slow."
As a result, the European Commission wants to establish "default rules" on solidarity to cope with emergency situations.
The final version of the document will be presented on Tuesday afternoon after the meeting of the College of Commissioners.