EDITOR’S VIEW: Gas price caps are not a solution to Europe’s industrial decline

Additional reporting by Ed Cox

LONDON (ICIS)–The 2022 energy crisis has left the EU between a rock and a hard place.

Record gas prices caused by the Russia-Ukraine war combined with costly climate policies to deal a heavy blow to industrial production, triggering widespread plant closures and an economic downturn.

The ensuing need to respond to industrial decline while also stemming social and political turmoil caused by soaring energy costs prompted lawmakers to adopt a controversial wholesale gas price cap, which expired at the end of January.

Although prices have fallen since the record levels seen in 2022 they remain stubbornly high by historical standards and have recorded a sustained increase so far in 2025. This has further heightened calls from large consumers to push for urgent measures to curb energy costs, fearing the imminent collapse of industrial production.

And the concerns are legitimate. Europe faces geopolitical volatility and growing competition from China and the US.

However, reports that the EU may now consider introducing a new gas price cap to stave off industrial decline should come under public scrutiny because of serious risks.

A first risk relates to the fact that a price cap would impair the market’s ability to attract more supply if needed.

Such a risk would be both short- and long-term as European buyers have secured only a fraction of the LNG volumes already contracted by Asian companies.

In January 2025, LNG covered almost 37% of EU and British gas supply, according to ICIS data.

However, putting a figure on the percentage of Europe’s contracted LNG relative to future demand is challenging. This is in part due to great uncertainty over Europe’s gas demand alongside the complexities of LNG contracts.

But the underlying message that Europe only contracts a portion of its LNG demand – and is heavily dependent on market prices to attract remaining supply – is correct.

The need for a robust, market-based TTF reference price in reflecting Europe’s LNG demand relative to other markets will only increase in line with a dependency on US LNG imports, and in the event that Russian pipeline gas does not return.

Beyond 2023, the majority of LNG contracts with European companies are for supply from the US on a free-on-board basis, meaning there is no contractual commitment to deliver to Europe.

Price signals from buyers in Europe, Asia, South America and the Middle East play a key role in determining the destination of these cargoes. Europe has only received sufficient LNG in recent months to cover gas demand because the TTF has pulled supplies inwards, and away from other global buyers.

Large future LNG contracts are also in place with Qatar, but they typically contain diversion rights. It has not been the policy of the EU, nor of European LNG buyers, to commit to large, fixed-destination contracts given the expected long-term drop in Europe’s gas demand. In any case, few sellers would commit to such business with the prospect of a price cap and with other global buyers potentially more attractive.

And there are other risks related to financial stability and the credibility of EU markets as they would no longer accurately reflect the bloc’s supply-demand balance.

An artificially capped price could lead to higher margin requirements but would also put a strain on the EU’s overall budget, leading to soaring debt. This is because of the gap between regulated and free market prices, which would ultimately have to be borne by EU taxpayers.

The EU might consider other options such as reducing regulations and red tape, or ensuring companies have all the flexibility they need to attract more supplies.

Although the EU has a fine line to tread – preserving the bloc’s competitiveness while ensuring security of gas supply – introducing a gas price cap would have a deeply harmful impact on markets.