Europe has agreed to a cap on natural gas prices after months of debate over whether the measure will protect European households and businesses from extreme price spikes as temperatures drop.
At a meeting Monday, EU energy ministers agreed to cap the price of one-month natural gas futures on the Netherlands’ Title Transfer Facility (TTF) — the bloc’s benchmark gas exchange — to €180 ($191) per megawatt-hour, if so, exceeds that level for more than three consecutive business days.
The cap also applies to three-month and year-ahead gas trades and will remain active for at least 20 working days once triggered. It is scheduled to come into force on February 15 next year.
“We have the deal,” Czech Republic Deputy Prime Minister Jozef Síkela said at a press conference on Monday. The Czech Republic currently holds the EU Council Presidency.
The price cap is much lower than the €275 ($292) per megawatt-hour limit originally proposed by the European Commission last month.
The cap would also be triggered if prices are at least €35 ($37) above a reference price for liquefied natural gas (LNG) over the same period. Prices for LNG – a refrigerated, liquid gas that can be transported via sea tankers – are closely linked to prices for European natural gas, which is delivered through pipelines.
Síkela described the cap as “temporary, effective [and] realistic mechanism that will protect citizens and businesses from excessive gas prices this summer.”
“This is not a fixed cap, but a dynamic one,” he added.
The cap is the latest in a series of measures the European Union agreed this year to stem an energy crisis sparked by Russia’s invasion of Ukraine, which has pushed up prices and the highest inflation in decades has fueled.
Gas prices rose to a record high of around €345 ($367) per megawatt-hour in August after Moscow cut gas supplies to the continent. TTF gas futures fell 5% to €107 ($114) a megawatt-hour on Monday.
Other EU measures included gas storage requirements and a $60 per barrel price cap for Russian oil at sea.
Despite Monday’s political deal, analysts and traders remain concerned that the mechanism could backfire – leading to rising prices and potential supply shocks.
Germany, the bloc’s largest economy and one of its biggest natural gas importers, had been the most notable holdout prior to Monday’s announcement.
“Gas traders would likely liquidate short positions and stop selling futures if they feared the break could be activated immediately amid fears of the resulting losses,” analysts at Eurasia Group said in a note Monday.
Following the announcement, a spokesman for the Intercontinental Exchange, which operates the TTF, said they “repeated our concerns about the destabilizing effects of a [price cap] will have on the market.”
The spokesman said the exchange is reviewing the details of the new proposal and “whether [it could] continue to operate fair and orderly markets for TTF from the Netherlands.”
Trading on the TTF will continue as usual for the foreseeable future, they added.
Addressing the concerns, Síkela said the cap could be “automatically deactivated” in several cases, including when gas consumption across the block is high, when trading on the TTF falls, or when quarterly imports of LNG fall.
A “qualified majority” is still required to implement the proposal, which means that 15 countries representing at least 65% of the European population must agree to it.