The Dutch regulator that oversees the TTF exchange, Europe’s main natural gas futures market, has warned that efforts to cap gas futures prices could have negative consequences, including physical shortages.
Futures are contracts that are executed at some point in the future at a price agreed upon on the contract date.
European gas prices have been driven by supply and demand since Russia’s invasion of Ukraine began, and there were no signs of manipulation or excessive speculation despite a sharp rise in prices, the Dutch Authority for Financial Markets (AFM) said in its annual policy report.
The agency has taken a critical stance towards “the European tendency for price caps or very strict rules on volatility”, board member Hanzo Van Beusecom said at a press conference.
“The market functions adequately and with interventions you never know what you can get, the consequences can be worse than you expect”, Beusekom stressed.
He added that while the AFM understands that high gas prices are painful for businesses and consumers, they have driven investment in new European liquefied natural gas (LPG) infrastructure and led to shipments of TPG being sent to Europe instead of Asia.
The European Commission announced in October that it would consider introducing a “dynamic” price cap for TTF futures, after Italy, Belgium, Poland and 12 other countries called for gas price caps in the EU.
Since TTF futures prices are used as a reference price for TPG purchase contracts, this has fueled hopes that capping prices on the TTF would mean lower prices for European gas imports.
However, Germany and the Netherlands, which are relatively wealthy and have large industrial sectors highly dependent on gas, oppose the cap.
The AFM also announced that the introduction of an alternative European reference index, which is another EC proposal, is something that market participants do not want, and which “will not have a greater effect in solving the fundamentals of excessively high energy prices… in the EU”.
The Dutch regulator said it conditionally supports another idea being considered by the Commission – the introduction of an automatic “trading switch” instrument to limit large price fluctuations in a day and ensure normal trading. He adds, however, that this will not help lower prices, Euronews writes.