The European Union is in an energy crisis due to the Russia-Ukraine War. In fact, natural gas prices in Europe are ten times higher today than the 10-year average and these high prices are also directly impacting European electricity rates. To combat the energy market volatility in Europe and protect consumers throughout the Winter months from extremely high energy bills, the EU has instituted a gas price cap.
What Does The ‘EU Gas Cap’ Mean And How Does It Work?
The EU proposed and recently passed a cap on natural gas prices. This cap means that EU countries will not pay above a certain rate for natural gas. The gas cap officially begins on February 15, 2023.
Under this legislation the EU’s primary energy trading facility will be capped on purchasing natural gas at a certain price providing that the following conditions are met:
- Electric prices are €180 / MWH or more for three consecutive working days
- EU prices are higher than global energy prices by more than €35/MWh for the same three days.
Why Has The EU Natural Gas Rate Cap Been Applied?
The EU Gas cap has been introduced and implemented in an effort to protect European businesses and consumers from rising energy costs this Winter. Usually, energy prices spike in Winter months due to increased demand for natural gas to heat homes and businesses. Now, since EU natural gas prices are the highest they have ever been, regulators were worried that the Winter prices would be out of control. The gas cap was passed to prevent a further increase in energy rates this Winter.
How Long Will The Rate Freeze Last?
The gas cap legislation allows for these measures to be implemented for an entire year beginning on February 15, 2023, and can even be extended with the passing of future legislation.
How Does The Gas Rate Pause Impact The Global Natural Gas Market?
Critics of the gas cap bill claim that if European gas buyers are prohibited from purchasing gas above a certain price, then suppliers will sell their gas elsewhere for higher profits on the open market. These critics claim that this could put the EU further in the hole and strengthen the energy crisis. Others believe this will be positive for consumers and allow the EU some breathing room this Winter.
What Does This Mean For European Customers?
Consumers and businesses in Europe should experience more stable energy bills this Winter due to the gas cap. Although their current bills are almost ten times higher than where they were a few short years ago, Europeans can rest assured knowing that they will not continue to increase any further.
Customers in the United States might also feel the impact of European Natural Gas prices. Since producers in the U.S. are making an effort to supply Europe with the gas needed to make it through the Winter, this added demand on U.S. supply could continue to drive energy prices up for U.S. businesses and consumers.
Learn More About How The EU Gas Cap Could Affect Your Energy Rates
The European energy markets affect prices in the United States too. If you own a business or commercial building and are feeling the rise in energy prices on your income statement, then contact us today. Our team has over 100 years of combined experience in the U.S. energy markets and can guide you in finding lower-cost energy for your organization.
