A European price ceiling for gas is counterproductive and can cause major problems for energy suppliers, argues the Intercontinental Exchange (ICE), Europe’s largest energy exchange, against the FD. The exchange warns of the risk that the price of gas could rise well above the maximum price, forcing energy suppliers to hold larger reserves.
In Brussels, heated discussions are underway on a possible price cap for gas. The intention of such a price cap is supposed to be to keep energy costs down for households and businesses, but not all EU ministers agree with the proposed plans. Furthermore, there are still many question marks. One of the questions is what happens as soon as the price of gas rises far above the ceiling, the maximum agreed purchase price.
The price cap pushes the market price up
The ICE points out that due to the many uncertainties that still exist, energy suppliers and gas traders could run into problems. Previous proposals leaked within the EU seemed to indicate a relatively high price ceiling for gas compared to the current gas price. This could push the market price of gas to that level, according to the very concerned ICE.
Despite the price cap, gas traders and suppliers must hold collateral for contracts concluded, in order to provide the counterparty with certainty that payment can be made. But if the market price continues to rise, i.e. to the level of a possible price cap, companies also have to replenish their reserves to secure the collateral. According to the European gas exchange, this figure could amount to as much as 33 billion dollars. That would disrupt the entire market, says ICE.
FD journalist Carel Grol explains that as a result companies see their business operations in difficulty. ‘So you lose more money, because it’s fixed. As a result, commercial operations may be under pressure.’
Source: BNR
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