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The European Union’s gas price cap, which launches next month, could impact financial stability and potentially curb liquidity in Europe’s exchange-traded gas markets, the bloc’s financial and energy market regulators said on Monday (23 January).
EU countries agreed in December to a gas price cap that, from 15 February, will kick in if benchmark Title Transfer Facility (TTF) gas hub prices spike – a long-debated policy designed to avoid the record-high prices Europe faced last year after Russia slashed gas deliveries.
In a report published on Monday, the European Securities and Markets Authority (ESMA) said that if gas prices edge towards the level that would trigger the cap, market participants are likely to change their behaviour to avoid triggering it, or to prepare for it.
“While this behaviour would appear rational on an individual basis, it could trigger significant and abrupt changes of the broader market environment, which could impact the orderly functioning of markets, and ultimately financial stability,” ESMA said.
ESMA said it appeared likely that market participants would shift to trading gas on contracts or venues where the cap doesn’t apply – either by moving to non-EU trading platforms or trading “over the counter”. That could deal a blow to liquidity on regulated markets for TTF contracts, ESMA said.
A separate report by the EU Agency for the Cooperation of Energy Regulators (ACER) said the impending price cap had so far not caused any fallout in energy markets, but that it was monitoring a range of risks.
These include that market participants would move to “over the counter” trading or non-EU hubs, or raise their bids – leading to lower market liquidity, ACER said.
EU gas prices have tumbled in recent weeks amid unusually warm weather and full EU gas storage, with the front-month TTF contract now below €70 per megawatt hour (MWh) – far below the record-highs of over €300/MWh it hit last year.
ESMA and ACER will both produce a full report by March on the potential impact of the gas price cap.
The policy was approved by EU countries last year after a drawn-out debate between more than 15 pro-cap countries including Poland and Greece, and those such as Germany and the Netherlands that warned of potential negative consequences.
