Gas storage in Europe sits at high levels, while contracts with trusted suppliers move quickly and dependence on Russian gas has declined in both pipeline and LNG imports. If Vladimir Putin decides to cut supply, the EU could face a large hole in gas reserves next winter, risking tighter markets and higher prices. To head off that scenario, the European Commission tabled several measures this week. The plan keeps gas price containment separate from any top-up price cap and does not yet extend the Iberian mechanism beyond its current scope, even as it explores ways to curb speculation and volatility and to encourage joint buying, solidarity, and demand reduction.
Launching the Iberian mechanism allowed Brussels to gain experience and data on how electricity prices behaved in Spain and Portugal. In a recent address, the President of the European Commission, Ursula von der Leyen, said it is worth examining the option of applying such a mechanism on a European scale, a possibility outlined in a roadmap shown in Prague. She also noted that some questions must be resolved before any broad rollout and that the Commission remains cautious, ready to study feasibility while conserving resources managed by the Community Executive. There are concerns that higher demand could be sparked or that electricity would be subsidized by third parties, and the risk that major members like Germany or the Netherlands might oppose the idea.
Leaders will review the new plan at the European Council meetings on October 20 and 21. The call to action from Charles Michel, President of the European Council, stresses three priority strands: cut demand, guarantee supply security, and control prices. He also emphasizes leveraging the bloc’s bargaining power through joint gas purchases, establishing a more accurate market benchmark, and examining a temporary dynamic price cap that could respond to shifting conditions.
Three recommendations expand on measures already approved, including the so-called austerity steps and the energy windfalls cap. The Von der Leyen team has crafted an emergency package that Spain has helped assemble. Theresa Riveras, the third vice-president, warned that current proposals still fall short of delivering sustainable solutions, especially as the next winter approaches. Brussels remains focused on strengthening resilience and keeping costs manageable for households and businesses alike.
Joint purchases
Similar to the approach used for vaccines, the European Commission’s gas-buying mechanism aims to operate from spring 2023. The logic is straightforward: companies should merge to gain stronger bargaining power rather than compete against one another. The plan involves appointing a service provider to organize demand at EU level, consolidating gas-import needs, and seeking offers in the market according to the consolidated demand. Participation by member-state companies would be required, with the goal of meeting a portion of storage targets and possibly forming a European procurement consortium.
This structure would help smaller EU countries and buyers secure gas on more favorable terms. The Commission would be informed before any purchase is completed, and it could set thresholds for volumes and sign a memorandum of understanding to mitigate any adverse effects. The overarching aim is to secure a reliable supply while preventing a sudden exposure to price spikes for the region as a whole.
TTF revision and a dynamic limit
A core element is the call for an alternative price index for LNG, distinct from the Dutch TTF which currently serves as a reference for European gas contracts. The new index would be designed for pipeline gas and would not overstate prices by reflecting LNG dynamics. As this index is developed for the spring of 2023, Brussels proposes an interim mechanism to stabilize prices via the TTF if needed.
The plan envisions a dynamic price cap for trades in the TTF, with specific figures yet to be finalised. Under this mechanism, trades above the cap would be ruled out, aiming to curb excessive volatility and avoid extreme price levels. There is also a mechanism to limit spikes in energy derivatives markets, protecting traders from sharp intraday swings.
40,000 million in compliance measures
The package includes compulsory solidarity obligations to ensure that countries most hit by the energy crisis receive support from others within the bloc. This duty covers member states whose storage facilities, such as LNG terminals that are not connected to the pipeline network, face particular vulnerabilities. The plan would allow further reductions in gas consumption and enable redirecting up to 40 billion from cohesion funds from the 2014-2020 period to crisis-mitigating actions. For Spain, this could mean access to approximately 4 billion to cushion households and businesses from price pressures.