EU Seeks Power to Set Emergency Cap on Gas Prices

“Today’s package helps to keep European families warm and industry going,” EU Executive Vice President

Frans Timmermans

said.

The proposals mark the EU’s latest response to Russia’s invasion of Ukraine and its decision to squeeze the supply of gas to the continent. Moscow cut the flow of gas through the Nord Stream pipeline entirely in late summer, contributing to a sharp increase in European gas prices. Last month, the pipeline was severely damaged in an explosion that Western officials have attributed to sabotage.

The commission separately put forward a recommendation on Tuesday calling on member countries to run stress tests and identify vulnerabilities related to pipelines, underwater cables and other critical infrastructure amid rising concerns about the possibility of future attacks. It also said it would work to improve coordination between countries and with the North Atlantic Treaty Organization.

Natural-gas prices in Europe slid in recent days to their lowest level since late June, as forecasts for mild fall weather curbed the outlook for demand and storage sites filled close to capacity.

The proposal for a possible cap would apply to the continent’s benchmark gas contract, called the Dutch Title Transfer Facility, or TTF, and would be a temporary measure while officials work to set up a permanent benchmark for liquefied natural gas prices. The cap is meant as a last-resort and could also be extended to set a trading range for other hubs in Europe, officials said.

The proposal to cap gas prices would apply to the continent’s benchmark gas contract, called the Dutch Title Transfer Facility, or TTF, and would be a temporary measure while officials work to set up a permanent benchmark for liquefied natural gas prices. The cap could also be extended to set a trading range for other hubs in Europe, officials said.

Several conditions would need to be met for the price cap to be imposed, the commission said, including assurance that flows of gas among EU countries isn’t interrupted, that gas consumption doesn’t rise in response to the cap, and that derivative markets continue to work effectively.

The goal of the energy market proposals was to do something meaningful for the energy sector without harming the financial sector, a senior EU official said. The official declined to comment on the actual level of the price cap on Tuesday.

Italy, France and more than a dozen other countries have been calling for a cap on wholesale gas prices to ease the burden for businesses and households. Germany and the Netherlands have both opposed such a move, saying any limit on prices could lead to higher demand and divert gas to buyers who are willing to pay more.

The commission’s proposal appears to be aimed at finding a compromise between those two positions. Officials said it took inspiration from gas-cap proponents, but also includes safeguards meant to ensure imports keep flowing and demand doesn’t tick up.

“The more we flesh out what the possibilities are, the more we can convince member states to work with us on that solution,” European Commission President

Ursula von der Leyen

said of the gas price cap proposal. She said the plan should help demonstrate that there are limits to the prices the EU is willing to pay for gas.

The proposal for the cap would take effect through two steps, officials said. Countries will first need to agree on the general idea of establishing an emergency cap on TTF prices. After that, the commission would publish a second proposal outlining the technical details of how the cap would work, which would also require approval from EU countries.

The plans will be discussed by leaders at a summit in Brussels on Thursday and at a meeting of EU energy ministers next week.

Another element of the EU proposal seeks to pool EU countries’ demand for natural gas in an effort to negotiate better prices with suppliers. The commission said that purchasing gas together should allow smaller countries to access supply more easily and stop member countries bidding against each other and driving up prices.

To encourage member countries to participate, the proposal calls for a minimum requirement for how much demand must be channeled through the EU’s platform. Purchases through the platform would be voluntary, the proposal said.

The commission’s proposals also set out new rules for how gas would be allocated between countries and among consumers in case of a severe shortage. While it says vulnerable households would continue to be protected from an interruption in gas flows, governments could have the option of curbing gas supplies from households that might be using more gas than they need.

One element that wasn’t included in the package on Tuesday was a cap on the price of gas that is used to generate electricity, which the commission previously said it supported and would mirror a system that is already in use in Spain and Portugal. Officials said more work was needed to make sure that applying that system across Europe wouldn’t lead to higher consumption or other problems.

Write to Kim Mackrael at kim.mackrael@wsj.com and Joe Wallace at Joe.Wallace@wsj.com

“Today’s package helps to keep European families warm and industry going,” EU Executive Vice President

Frans Timmermans

said.

The proposals mark the EU’s latest response to Russia’s invasion of Ukraine and its decision to squeeze the supply of gas to the continent. Moscow cut the flow of gas through the Nord Stream pipeline entirely in late summer, contributing to a sharp increase in European gas prices. Last month, the pipeline was severely damaged in an explosion that Western officials have attributed to sabotage.

The commission separately put forward a recommendation on Tuesday calling on member countries to run stress tests and identify vulnerabilities related to pipelines, underwater cables and other critical infrastructure amid rising concerns about the possibility of future attacks. It also said it would work to improve coordination between countries and with the North Atlantic Treaty Organization.

Natural-gas prices in Europe slid in recent days to their lowest level since late June, as forecasts for mild fall weather curbed the outlook for demand and storage sites filled close to capacity.

The proposal for a possible cap would apply to the continent’s benchmark gas contract, called the Dutch Title Transfer Facility, or TTF, and would be a temporary measure while officials work to set up a permanent benchmark for liquefied natural gas prices. The cap is meant as a last-resort and could also be extended to set a trading range for other hubs in Europe, officials said.

The proposal to cap gas prices would apply to the continent’s benchmark gas contract, called the Dutch Title Transfer Facility, or TTF, and would be a temporary measure while officials work to set up a permanent benchmark for liquefied natural gas prices. The cap could also be extended to set a trading range for other hubs in Europe, officials said.

Several conditions would need to be met for the price cap to be imposed, the commission said, including assurance that flows of gas among EU countries isn’t interrupted, that gas consumption doesn’t rise in response to the cap, and that derivative markets continue to work effectively.

The goal of the energy market proposals was to do something meaningful for the energy sector without harming the financial sector, a senior EU official said. The official declined to comment on the actual level of the price cap on Tuesday.

Italy, France and more than a dozen other countries have been calling for a cap on wholesale gas prices to ease the burden for businesses and households. Germany and the Netherlands have both opposed such a move, saying any limit on prices could lead to higher demand and divert gas to buyers who are willing to pay more.

The commission’s proposal appears to be aimed at finding a compromise between those two positions. Officials said it took inspiration from gas-cap proponents, but also includes safeguards meant to ensure imports keep flowing and demand doesn’t tick up.

“The more we flesh out what the possibilities are, the more we can convince member states to work with us on that solution,” European Commission President

Ursula von der Leyen

said of the gas price cap proposal. She said the plan should help demonstrate that there are limits to the prices the EU is willing to pay for gas.

The proposal for the cap would take effect through two steps, officials said. Countries will first need to agree on the general idea of establishing an emergency cap on TTF prices. After that, the commission would publish a second proposal outlining the technical details of how the cap would work, which would also require approval from EU countries.

The plans will be discussed by leaders at a summit in Brussels on Thursday and at a meeting of EU energy ministers next week.

Another element of the EU proposal seeks to pool EU countries’ demand for natural gas in an effort to negotiate better prices with suppliers. The commission said that purchasing gas together should allow smaller countries to access supply more easily and stop member countries bidding against each other and driving up prices.

To encourage member countries to participate, the proposal calls for a minimum requirement for how much demand must be channeled through the EU’s platform. Purchases through the platform would be voluntary, the proposal said.

The commission’s proposals also set out new rules for how gas would be allocated between countries and among consumers in case of a severe shortage. While it says vulnerable households would continue to be protected from an interruption in gas flows, governments could have the option of curbing gas supplies from households that might be using more gas than they need.

One element that wasn’t included in the package on Tuesday was a cap on the price of gas that is used to generate electricity, which the commission previously said it supported and would mirror a system that is already in use in Spain and Portugal. Officials said more work was needed to make sure that applying that system across Europe wouldn’t lead to higher consumption or other problems.

Write to Kim Mackrael at kim.mackrael@wsj.com and Joe Wallace at Joe.Wallace@wsj.com