European Union (EU) energy ministers last week failed to agree to a cap on gas prices aimed at helping offset the ongoing energy crunch in Europe.
The ministers will now meet in the first half of December to attempt to bridge their differences, which, according to reports, “run deep.”
Czech Industry Minister Jozef Sikela, whose country holds the current presidency of the Council of the EU, was cited by a france24 report as saying a couple of other “important measures,” including joint gas purchases and supply solidarity in times of need, however, were agreed upon.
The gas price cap plan sets a maximum threshold of €275 (approximately $285 at current exchange rates) per megawatt-hour (MWh), and comes with conditions. Those conditions include that the cap proposal would only be triggered if the €275 per MWh limit was breached continuously for at least two weeks, and then only if the price for liquefied natural gas (LNG) rose above €58 for 10 days within that same two-week period.
Given the conditions, the price cap would not have been activated even when wholesale gas prices briefly soared above €339 per MWh in late August.
At least 15 of the EU’s 27 Member States want some kind of workable ceiling on wholesale gas prices to tackle the supply crunch since Russia invaded Ukraine.
Before the invasion, the EU relied on Russia for more than 40% of its gas supplies. That has now fallen to below 10%. Alternative sources such as LNG cannot make up for the shortfall.
The price cap plan, if adopted, would begin in January and would run alongside a voluntary initiative for EU Member States to cut their natural gas use by 15% over the northern hemisphere winter.
European gas prices have been rising again over the past couple of weeks. The Dutch TTF – the European benchmark – front-month gas (currently January 2023) closed at €137.0 per MWh on Dec. 1, down from its Nov. 30 close of €146.395, but up from the €97.855 per MWh close on Nov. 11.
Jefferies analyst Richard Johnson was cited in a Dow Jones report on Nov. 30 as seeing the prospect intensifying of more European ammonia capacity being taken offline after the Tampa ammonia price benchmark for December was concluded at $1,030/mt CFR, down $120/mt CFR from November’s $1,150/mt CFR.
Johnson said this comes despite the bounce in European gas prices (TTF) over the past fortnight. He believes the recent increase means European cash costs are now $1,400/mt, “meaning European producers are out-of-the-money,” which, he said, may be causing capacity to be taken offline in Europe.
Johnson, according to the report, put the amount of curtailed European ammonia capacity as of Oct. 20 at roughly one third.
If gas prices continue to firm from here, more capacity could be curtailed once again, he said.