MILAN, Oct 19 (Reuters Breakingviews) - The European Union is scrambling to make gas more affordable. After paying through the nose to rebuild emergency reserves, EU leaders will consider on Thursday and Friday whether to introduce flexible price caps, club purchases and even a new trading benchmark in a bid to lower energy prices. Such measures are unlikely to make a big difference. Curbing demand will be the key.

For a year, Europe has been battling with unusually high prices . In the preceding decade, one-month future contracts at the Title Transfer Facility (TTF), Europe’s main trading hub, rarely exceeded 30 euros per megawatt hour (MWh). This started to change last autumn, when gas production could not keep up with the bloc’s robust economic rebound from the pandemic. The EU’s decision to reduce purchases from number-one supplier Russia, after the Ukraine invasion, triggered a mad dash to buy the fuel elsewhere, lifting prices as high as 300 euros per MWh in August.

Steep gas transaction levels, which also push up electricity costs, are unsustainable. Countries like Hungary, the Czech Republic and Romania may face a 2023 power bill equivalent to about 15% of GDP, according to industry analysts ICIS. But finding a solution is hard.

Proposed circuit breakers on sudden price moves could prevent daily swings exceeding 5%, but would not alter the overall direction. A temporary cap or corridor on TTF transactions may stop August-like excesses, but the price would still be much higher than the last decade’s average. And since many long-term contracts are tied to TTF, this option may trigger litigation. Club purchases, like those the EU used to buy Covid-19 vaccines, may not persuade sellers to offer a major discount while demand remains high. Introducing a separate European benchmark for liquified natural gas, which can carry a discount to TTF, would only make a difference if industry players are willing to use it.

The only thing that seems to work is reducing demand. One-month TTF contracts started to decline once European nations slowed down buying to replenish their emergency storage facilities, now 92% full. An unusually mild autumn has also reduced the need for heating, dragging prices to four-month lows of 118 euros per MWh . With non-Russian gas producers already pumping at full capacity, Europe can’t do much to boost supply. Learning to save energy at home, and making companies more efficient, could be the only way to keep gas prices down.

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CONTEXT NEWS

European Union leaders will meet on Oct. 20-21 to discuss a package of measures designed to lower energy prices.

The raft of measures under discussion, drafted by the European Commission, include a temporary and flexible price corridor on gas transactions taking place at the Title Transfer Facility (TTF), Europe’s main gas hub. The commission is also suggesting introducing daily volatility caps for one-month forward gas futures.

Another proposed measure envisages EU countries jointly purchasing 15% of the gas needed to fill 90% of the EU’s gas storage facilities by November 2023.

Each proposal needs the support of a reinforced majority, which means at least 15 EU countries representing 65% of the bloc’s population.

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