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20 Dec, 2022 14:54

Gas price cap may worsen EU energy crisis – Bloomberg

The measure could increase demand and lead to supply shortages, the outlet reports
Gas price cap may worsen EU energy crisis – Bloomberg

A price cap on gas that the EU agreed upon this week may trigger a deeper energy crisis and expose the bloc to supply shortages, Bloomberg reported on Tuesday.

The so-called “market correction mechanism” aimed at protecting EU businesses and households from “excessively high gas prices” could in reality encourage demand and lead to an even worse scarcity of gas supplies in Europe, analysts from Golden Sachs said in a report on Monday, cited by Bloomberg.

Growing demand would put a squeeze on global supply and may force EU authorities to ration gas in the worst-case scenario, according to the outlet. EU interventions in the energy sector may also expose the region to stronger competition from Asia as demand in China recovers with the easing of Covid restrictions.

Economists warn that, with the price ceiling on gas, European importers may face problems with securing liquefied natural gas (LNG) deliveries as suppliers will favor Asia if prices there are higher. The EU and Asia are competing for LNG shipments, with prices setting record highs on both markets earlier this year. The intense competition may get even worse as cargoes come from the same exporters, such as the US and Qatar.

LNG demand in Asia has already increased in recent weeks as buyers are rushing to stock up for late-winter supply.

On Monday, EU energy ministers agreed to set the price cap on wholesale gas at €180 per megawatt-hour (MWh), which will trigger if the Dutch TTF natural gas futures exceed the limit set for three days. The cap will come into force on February 15.

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