EU considering gas price cap to curb surging energy costs

By Kate Abnett and Charlotte Van Campenhout

BRUSSELS, March 11 (Reuters) - The European Union is considering measures to curb energy prices, including by capping gas prices, European Commission President Ursula von der Leyen said on Wednesday.

Even before oil ⁠and gas prices surged due to the Iran war, Brussels had been drafting proposals to try to relieve industries that say high energy prices mean they cannot compete with rivals in ​China and the United States.

"It is crucial that we reduce the cost impact, when gas sets the electricity price," von der Leyen told the European Parliament.

"We are preparing different options: better use of power purchase agreements and contracts for difference; state aid measures; and we are exploring subsidising or capping the gas price," she said.

The EU's electricity system is designed so that the last power plant needed to meet total demand sets the power price. Often, that is a gas plant - so gas price spikes can send electricity prices soaring, even when much of the power is being produced from cheaper renewable or nuclear sources.

The idea of capping gas prices is likely to divide EU governments.

The EU introduced a gas price cap in 2022, when Russia ⁠invaded Ukraine and cut gas deliveries to Europe, pushing prices to record highs and forcing some industries to shutter.

The cap was designed to kick in if European gas prices hit 180 euros per megawatt hour. It was never triggered and expired last year.

The cap had been opposed by governments, including Germany and the Netherlands, who warned it would hamper Europe's ability to secure fuel supplies in a crisis, particularly if buyers in Asia could out-bid European buyers to secure liquefied natural gas cargoes.

Some Europe-bound LNG tankers have already pivoted towards Asia since the start of the Iran war, as buyers scramble for replacement cargoes after Qatar, India's top supplier, halted LNG production.

Von der Leyen also said returning to Russian energy would be "a strategic blunder" and make Europe more vulnerable. Hungary's Prime Minister Viktor Orban this week asked the EU to lift its energy sanctions on Russia - which prohibit most Russian oil imports - to curb prices.