The European Union’s gas price cap, which launches next month, could impact financial stability and potentially curb liquidity in Europe’s exchange-traded gas markets, the bloc’s financial market regulators said in a draft report seen by Reuters.
EU countries agreed in December to a gas price cap that will kick in if Title Transfer Facility (TTF) gas hub prices spike to high levels that are also significantly above liquefied natural gas prices – a long-debated policy designed to avoid the record-high gas prices Europe experienced last year.
In a report due to be published on Monday, a draft of which was seen by Reuters, the European Securities and Markets Authority said that if gas prices edge towards the level that would trigger the cap, market participants are likely to change their behaviour to avoid triggering the cap or prepare for the cap to apply.
“While this behaviour would appear rational on an individual basis, it could trigger significant and abrupt changes of the broader market environment, which could impact the orderly functioning of markets, and ultimately financial stability,” ESMA said.
ESMA said it appeared likely that market participants would shift to trading in contracts or venues where the gas price cap doesn’t apply – either by moving to non-EU trading platforms or trading “over the counter”. That could deal a blow to liquidity on regulated markets for TTF contracts, ESMA said.
The full impact of the price cap may only become clear when it is close to being triggered, ESMA said.
ESMA and the EU’s energy regulator ACER, were each tasked wth producing an initial analysis by Monday, and a full report by March, on whether the gas price cap could have unintended negative consequences for financial and energy markets.