What are the EU’s various gas price caps?

EU leaders have once again huddled to find a compromise on capping the price of imported gas to solve Europe’s energy crisis – a direct consequence of Russia slashing supplies to the continent as a "retaliation" against EU sanctions over the war in Ukraine.

The latest meeting took place on Friday on the sidelines of the European Political Community Summit in Prague with the aim of reaching a consensus on the question of capping as soaring energy costs have become a major worry for Europeans.

The price of energy in Europe is linked to the cost of the most expensive fuel, usually gas. The gas shortage has created a distortion of the market that has sent energy prices through the roof. 

Families are struggling to keep up with the increasing costs - set to rise further as the cold season sets in - while factories and businesses are threatened with a total or partial shutdown of their activities.

In 2021, Russia accounted for about 45 percent of the European Union’s gas imports. European countries aim to eventually replace all of Russia’s gas with other energy sources and have so far replaced about 30 percent of that amount, mostly with Liquefied Natural Gas (LNG).

But for now, Europe remains dependent on Russia for its energy needs, while Russia continues to reap huge profits from selling gas to EU countries due to the higher prices. 

The European Commission first proposed to introduce a cap on Russian gas last September, triggering a war of words as Russian president Vladimir Putin threatened to cut all supplies to Europe.

European countries have so far failed to find a way forward on the issue. More than half of the EU’s member states support an introduction of the cap.

But some countries, including Germany, worry a price cap could endanger their energy security by diverting supplies. 

"We do not support an absolute maximum limit - in other words, a rigid price cap - because there is a risk that we will then no longer be able to buy enough gas on the world market at this price," a spokesperson for Germany’s economy ministry said last week.

The comments came as the country introduced its own national price cap to shield consumers, worth 200 billion euros, which detractors say could endanger the EU’s single market.

It is also unclear whether any price cap would apply to all gas imports including Liquefied Natural Gas (LNG) shipped to Europe from the United States and elsewhere - or only pipeline gas as proposed by Brussels – a move aimed at targeting Russian gas. 

Here is a breakdown of the proposals and the debates around them:

Electricity gas cap

In a letter meant to serve as the basis for Friday’s discussions, European Commission President Ursula von der Leyen proposed to cap the price of gas used for the production of electricity.

"We are ready to discuss a cap on the price of gas that is used to generate electricity," European Commission President Ursula von der Leyen said this week during a meeting of the European Parliament in Strasbourg. 

"This cap would also be a first step on the way to a structural reform and overall reform of our electricity market," she said, adding that EU countries “also have to look at gas prices beyond the electricity market".

Market transactions cap

A second cap proposed by the European Commission would see the EU temporarily capping gas prices at the Dutch Title Transfer Facility (TTF), Europe's leading trading hub, in an attempt to control market speculation. 

"One way forward would be to consider a flexible pricing limitation in relation to the TTF in a way that continues to secure the supply of gas, notably LNG, to Europe," EU energy commissioner Kadri Simson said this week. 

Meanwhile, the EU would work on an alternative benchmark price to the TTF, the commissioner told the European Parliament.

“Price corridor”

A group of countries including Italy, Belgium, Greece and Poland have put forward the idea of a “dynamic price corridor.” 

"The corridor would apply to all wholesale transactions, not limited to import from specific jurisdictions and not limited to specific use of natural gas," said a document outlining the proposal seen by the Reuters news agency. According to the document, the so-called “corridor” should apply to all existing long-term supply contracts as well as new ones. 

This type of cap, the proposal says, would be allowed to be lifted in case of a supply emergency, in a bid to find a compromise with price cap sceptics.