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Defining gas price limits and gas saving targets for a large-scale gas supply interruption

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Abstract
Should deliveries of Russian gas by pipeline be interrupted for an extended period of time, then gas prices could explode to up to several hundred Euros per MWh due to scarcity of supply. This risk is already reflected in future and spot gas prices and has caused much of the current extremely high gas price levels and volatility. Any additional price increase after a potential large-scale gas supply interruption would likely trigger even more government interventions in EU’s energy markets, with the objective to limit costs for households and other consumers. To avoid such ad-hoc measures, the EU Commission has proposed in the REPowerEU communication to agree already now, ahead of any potential large-scale interruption, on a coordinated European response to a large-scale gas supply interruption. We explore how the proposed measures, which include binding national gas saving targets and limits to the gas price in the case of large-scale gas supply interruptions, would impact supply and demand after an interruption. We also assess how the level of the price limit would impact the supply and demand balance after an interruption and the price formation prior to it.

Suggested Citation

  • Neuhoff, K., 2022. "Defining gas price limits and gas saving targets for a large-scale gas supply interruption," Cambridge Working Papers in Economics 2253, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:2253
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    File URL: https://www.econ.cam.ac.uk/research-files/repec/cam/pdf/cwpe2253.pdf
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    References listed on IDEAS

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    Cited by:

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    4. Krebs, Tom & Weber, Isabella, 2024. "Can Price Controls Be Optimal? The Economics of the Energy Shock in Germany," IZA Discussion Papers 17043, Institute of Labor Economics (IZA).

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    More about this item

    Keywords

    Price cap; Security of Supply; Gas saving; Consumer welfare;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D47 - Microeconomics - - Market Structure, Pricing, and Design - - - Market Design
    • D61 - Microeconomics - - Welfare Economics - - - Allocative Efficiency; Cost-Benefit Analysis
    • L95 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Gas Utilities; Pipelines; Water Utilities

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