Un gas price cap with "fork". That is: variable price linked to three international LNG (liquefied natural gas) exchanges with the creation of a new platform. Also, abandonment of the Dutch FTT as a benchmark and creation of a new trading platform. This is the core of the Italian proposal to reduce the price of gas on the international market, and consequently the electricity and gas bills, which Rome will send to Brussels today. But the European plan will not arrive at the informal summit in Prague, scheduled for 6 and 7 October.
It is yet another Italian proposal to convince European countries to stop the gas price run. There is therefore no longer talk of a fixed ceiling on the price of gas, but of a fork in which the price of gas can fluctuate between a minimum and a maximum. The Minister of Ecological Transition is working on the proposal, Roberto Cingolani, with the collaboration of the technicians led by Sara Romano, head of the Energy and Climate department of the same dicastery.
Meanwhile, the German finance minister Christian Lindner reject the proposal they put forward Paolo Gentiloni, European Commissioner for the Economy, e Therry Breton, European Commissioner for the internal market, on the use also for energy of an instrument similar to the "Sure" launched during the pandemic to help families and businesses.
Why does the gas price keep fluctuating?
The current context of war, with the limitations of supplies from Russia, has certainly led to a situation of greater tension, at a national and Community level, on the natural gas markets, with wholesale prices that fluctuate every day between new highs and new lows. For example, on 28 September the price of European gas had broken through the 220 euros per megawatt hour, after the damage to Nord Stream 1 and 2. Today, the expectation of a climate in the Old Continent above the seasonal averages which could avoid drawing on stocks , and progress in storage, have pushed down the price of methane, to 167 euros per megawatt hour, after slipping to a low of 159 euros.
What is the gas price cap with fork?
The Minister of Transition explained that a range can be created between a minimum and a maximum gas price in which there can be a variation that follows the market, but which avoids an out-of-control situation like the one we are experiencing. But above all he proposes to link the cost of gas to a new platform, different from the TTF, and work on an average of three exchanges, the most important in the international gas trading market:
1) theHenry Hub American, which has prices historically lower than those of Amsterdam, also due to the fact that the United States remains a large producer of LNG (liquefied natural gas);
2) The jkm, benchmark for LNG on the Asian market;
3) The Brent, the London oil exchange historically conditioned by Norwegian supplies, with its 2.000 billion shares traded per day.
The "modular range" of price, to be "digested" by all European countries - even if it will hardly find Holland favorable - should however have a rather wide range, or - explains Cingolani - still consider a maximum value that changes according to the international price of natural gas.
Why doesn't the TTF work anymore?
The TTF is considered "little liquid", because it only trades one or two billion a day in value, becoming a "slave" of speculation at any sensitive news. «The TTF has worked in the past, but it is time to have a more truthful European index – observed Cingolani -. There is no justification for the 8-10 times increase in the price of gas, we are paying so much for it because someone is afraid there will be a shortage in the future. Everything evolves, even the market, the rules need to change. I will hazard a prediction – continued the Minister of Ecological Transition -, if the European Commission wants to make a proposal within two months on the price cap including the decoupling of the price of renewables, at which point in the following quarter the bills will be lower, we must not waste time ».
Why doesn't a ceiling on the price of Russian gas make sense?
Il price cap on Russian gas The momentum is out of the picture, considering that Europe receives much less gas than before from Russia and therefore reaching an agreement on the price cap is no longer so necessary at present. In any case, the proposal relaunched several times by Mario Draghi continues to be hampered by several countries including Germany who argue that security of supply needs to be ensured and with a price cap there is a risk that the problem will become even bigger as Europe could be cut off from supplies and those who sell it to Europe and would be oriented towards preferring other markets, such as China or India. That's why Cingolani also wants to use the Asian index to determine the fork.
Furthermore, the ceiling on the price of Russian gas will not help get off the bills. The "zero scenario" of flows from Moscow, experienced in recent days by Italy, is now a reality - Gazprom has stopped supplies to Italy since last Saturday at least until today - and "rationing plans" could drive up the price , as well as a "particularly harsh winter" (since consumption will erode stocks). Therefore, net of the reference platform used to calculate it, the price will be structurally high for the next three to four years". For this reason there is talk of disengaging from the Dutch hub, which is too volatile and subject to speculation.
The Breton-Gentiloni proposal on recourse to a common debt
In short, the aim is for a common European response, also to alleviate the costs of the crisis and support families and businesses. Without rushing alone, as did the Germany with its 200 billion plan. They say it Paolo Gentiloni and Therry Breton: «The massive 200 billion euro aid package decided by Germany (equal to 5% of GDP) responds to the need – which we have invoked – to support the economy, but it also raises questions. How can Member States that do not have the same budgetary margins support businesses and households? That's why, a Sure mechanism to help Europeans and industrial ecosystems in the current crisis could be one of the short-term solutions paving the way for a first step towards the provision of 'European public goods' in the fields of energy and security, which is the only way to give a systemic response to the crisis». This is the instrument designed to support the financing of "layoff funds" during the pandemic through the issuance of one hundred billion in common debt for government loans.
Germany is still putting its foot down
But German Finance Minister Christian Lindner he does not believe that the pattern can be repeated to address the current energy price crisis. The Sure hypothesis "wouldn't make sense" since "we don't currently have a problem of demand, of an economy to stabilize, stimulate but we do have a shock on the supply side and we need to reflect on the root problem, i.e. the trend of gas market,” Lindner said.
