EU tells countries gas price cap would come with risks

European Union flags fly outside the European Commission building in Brussel on June 16, 2022. (KENZO TRIBOUILLARD / AFP)

BRUSSELS – The European Commission has warned EU countries that a broad cap on gas prices could be complex to launch and pose risks to energy security, amid calls from countries for Brussels to step in to tame high fuel prices.

The Commission shared a document with countries on Wednesday, analyzing various options the EU could consider to curb high gas prices, after 15 of the bloc's 27 member states this week urged the EU to propose a cap on gas prices.

The document, seen by Reuters, said a wholesale price cap for exchange transactions – covering both liquefied natural gas and pipeline supplies – could disrupt flows of fuel between EU countries.

The document the EU Commission shared with countries suggested such a price cap could only work if a new entity was launched to allocate and ship scarce fuel supplies between states

That's because price signals would no longer help drive flows to regions where demand is high or supply scarce, the Commission said. It suggested such a price cap could only work if a new entity was launched to allocate and ship scarce fuel supplies between states.

The EU would also need "significant financial resources" to ensure countries could keep attracting gas supplies from competitive global markets where other buyers may be willing to pay prices above the EU cap, the Commission said. It did not specify where such resources could come from.

READ MORE: EU vote paves way for higher minimum pay

A broad wholesale gas price cap would pose a bigger "risk of triggering supply disruptions" from foreign suppliers than a cap on just pipeline deliveries, it added.

The Commission analyzed other options to tackle the energy crunch, including more limited gas price caps.

The EU could cap the price of Russian gas imports, or cap the price of gas used to generate electricity as a way to tame high power prices, the document said.

The Commission recommended the EU negotiate with "reliable" suppliers to reduce prices and said joint gas buying could also help countries fairly share extra supplies.

ALSO READ: EU to propose crisis measures to curb energy price spike 

EU countries disagree on whether a broad gas price cap would ease the supply crunch and energy price surge caused by Russia slashing supplies to Europe.

France, Italy, Poland and 12 other countries urged Brussels on Tuesday to propose a wholesale gas price cap to help rein in surging inflation. Germany, the Netherlands and Denmark are among those opposed.

Discussions on possible gas price caps will continue at a Friday meeting of EU energy ministers, who are also set to approve a package of measures proposed by Brussels last week, including windfall profit taxes on energy firms.