© Archyde.com. Goldman Sachs pours cold water: EU gas price cap too low or exacerbates energy crisis
News from the Financial Associated Press on December 21 (edited by Zhou Ziyi)Goldman Sachs said in a note this week that the European Union’s cap on natural gas prices at such a low level might disrupt the market, curb supply in the region and exacerbate the energy crisis, according to media reports.
EU energy ministers reached an agreement on Monday to cap gas prices at 180 euros per megawatt-hour, well below the 275 euros per megawatt-hour originally proposed by the European Commission last month.
According to the EU draft text, if the European gas benchmark price Dutch TTF’s front-month contract price exceeds 180 euros per megawatt-hour for three consecutive days, the price cap mechanism will be triggered.
This mechanism is designed to prevent extreme price fluctuations, but it also risks exposing the EU to insufficient supply and fierce competition from Asia.
It won’t work without setting limits on demand
Goldman Sachs analyst Samantha Dart and her team pointed out in a report that “a price cap without corresponding demand constraints will not only fail to solve the problem of natural gas shortages in Europe, but may also exacerbate current shortages by stimulating consumption.”
The bank emphasized that capping natural gas prices might reduce already tight market liquidity, exacerbate the risk of reduced supply and disrupt business risk management.
Goldman Sachs also said this might lead to tighter global supplies next year and, in a worst-case scenario, governments might be forced to ration natural gas.
On the Dutch TTF market, the front-month contract for natural gas is currently at €105.80/MWh, the lowest price since November 17.
Goldman Sachs reminded that only when demand is disrupted can Europe’s natural gas inventories reach more than 90%.
According to data from Gas Infrastructure Europe (GIE), the current natural gas inventory in Europe as a whole is 83.82%.
