(Bloomberg) -- Germany, Netherlands and four other European Union member states oppose extending a proposed price cap on natural gas to over-the-counter trade and short-term markets, warning that any intervention must ensure prices in the region stay competitive with world markets.
The group, which includes Austria, Denmark, Luxembourg and Estonia, called for the the so-called market correction mechanism to include an automatic suspension clause, according to a document shared with other EU member and seen by Bloomberg News.
The position of the six countries was presented Wednesday during EU talks to prepare a meeting of energy ministers on Dec. 13, which will seek to iron out a deal on the price cap. If they can’t reach a deal, EU leaders would discuss the topic at their summit later next week.
The controversial issue pits those nations, which in the past weeks called for a cautious stance on market intervention, against Poland, Italy and Belgium, which have supported a more aggressive approach to limit high gas prices sparked by a cut in supply from Russia.
Under a proposal by the European Commission in October, the gas market correction mechanism would kick in when the price of month-ahead contracts on the Dutch Title Transfer Facility exceeded €275 per megawatt hour and the gap between world prices was greater than €58.
While the commission’s plan was to impose a cap only on month-ahead TTF trades, some more hawkish countries want to extend it to off-exchange deals and shorter-term contracts, such as intraday or day-ahead transactions.
“This extension would significantly increase the risk associated with the mechanism, also in terms of security of supply, and that emergency situations leading to rationing and blackouts could occur,” the group of six countries said in their document.
They also opposed a provision to give member states a say on when the price cap should be deactivated, arguing its suspension should be automatic to avoid discussions among governments at a time when an urgent decision is needed.
“We need to make sure that an automatic suspension applies in case certain ‘red light criteria’ for the safeguards are met (e.g. rationing in one member state, which is also a question of solidarity, increases by x% of gas demand),” they said. “It should be possible to suspend the mechanism if one member state is in an emergency as a result of the mechanism.”
Under the latest revision of the regulation proposed by the Czech government, which holds the EU rotating presidency until the end of December, the suggested price cap was cut to €220 and the spread between EU and world markets to €35. The group said it was “very concerned” that the thresholds for intervention have been lowered “that much” in negotiations among member states.
The six countries stressed that for the price cap to be activated, both criteria — the price and the spread — must be fulfilled and one cannot replace another.
“Thus the spread to the world market price can only become effective above the cap, set to avoid excessive prices,” according to the document. “A spread to a low or medium world market price does not qualify as an excessive price.”
They also proposed that to enable a compromise in the coming days, negotiators from member states should focus only on the structure of the regulation and the figures should be set at the political level of ministers. The measure requires a weighted majority support from governments.
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