Dec 20 (Reuters) – Goldman Sachs sees the lower than previously proposed EU cap on natural gas prices significantly raising the risk of market disruption, owing to no associated demand restrictions, the bank said in a note this week.
European Union energy ministers on Monday finally agreed a gas price cap, to be triggered at 180 euros/MWh and also dependent on a 35 euro price difference to global prices of liquefied natural gas (LNG), lower than the earlier proposed 275 EUR/MWh.
“A price cap without an associated cap to demand not only does not solve the gas deficit in Europe but also risks making the ongoing deficit worse by incentivizing consumption,” Goldman said in a note dated Dec. 19.
Capping gas prices could also reduce liquidity in an already tight market, increase the risk of lower supply and disrupt commercial risk management, it highlighted.
“Even if trigger conditions are not met, market tightening events that lift prices anywhere near the proposed cap are likely to cause preemptive action by market participants,” leading to those negative effects anyway, the bank warned.
In the Dutch TTF market, the day-ahead contract traded last at 105.80 euros per megawatt hour (MWh), hitting its lowest since Nov. 17 earlier in the session.
Goldman said prices would still need to average 180 EUR/MWh during the summer of 2023 to sustain enough demand destruction that would allow North Western European storage to build to above 90% of its capacity.
European gas storages were last seen 83.82% full, according to Gas Infrastructure Europe.
Freeport LNG’s long-shut liquefied natural gas (LNG) export plant in Texas, which has added to the squeeze on global supplies of the fuel caused by Russia’s invasion of Ukraine, was on track to receive natural gas on Tuesday, data showed.
Reporting by Seher Dareen in Bengaluru, Editing by Louise Heavens
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