Spiking European Energy Prices Result in Cap Considerations

Skyrocketing natural gas prices have resulted in the European Union considering the implementation of a price cap. European gas prices hit a 2 year high, peaking at €58/Megawatt Hour (MwH).

Increased demand no doubt plays a part. Winter months often see spikes in demand for energy, and recent times have pushed the EU toward an increased reliance on energy from either storage sources or imports of Liquefied Natural Gas (LNG) from the US.

This time around, Europe isn’t the only continent looking to LNG from the US; an increase in demand from Asia is notable. Recent draws have depleted Asian reserves, leaving them with 49% of their storage left, a decrease of 18% from this time last year. Both these factors have been main contributors to the 2 year high in the price of energy with regard to the European Union.

Resultantly, many in the EU are considering the idea of a price cap, which was first implemented in 2022 after the removal of Russia’s energy imports into the continent resulted in a massive price spike; the cap is currently set at €180/MwH . However, many energy experts suggest that the implementation of such a cap would worsen the Union’s reputation, and hinder the ability of the continent to import energy moving forward, as other countries may look to use other benchmarks to measure gas prices, such as those used by other countries.

Given its lack of precedence, and a large opposition, it seems unlikely that the cap would be triggered this time around. However, the concerning trends surrounding Europe’s slowly depleting energy sources may result in the sentiment changing moving forward.

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