UPDATE 1-Dutch regulator: TTF gas futures market is healthy, price cap unwise

However, Germany and the Netherlands, both relatively wealthy and with large industrial sectors that are highly dependent on gas, oppose a cap. The AFM also said the introduction of an alternative European benchmark - another Commission proposal - is something market participants do not appear to want, and which "will do little to address the fundamentals of excessive energy prices ...

The Dutch regulator which oversees the TTF, Europe's main natural gas futures market, on Thursday warned that attempts to impose a cap on futures prices could have negative consequences, including physical shortages. European gas prices have been driven by supply and demand since Russia's February invasion of Ukraine, and there has been no sign of manipulation or excess speculation despite the sharp price rise, the Financial Markets Authority (AFM) said in its annual review of policy.

The agency is critical of "the European tendency toward a price cap or very strict volatility rules," board member Hanzo van Beusekom said at a press conference. "The market is functioning adequately and with interventions you never know what you may get, the consequences may be worse than you expect."

He said that while the AFM understands high gas prices are painful for businesses and consumers, they have triggered investments in new European LNG infrastructure and led to shipments of LNG being sent to Europe instead of Asia. The European Commission in October said it would consider setting a "dynamic" price cap on TTF futures, after Italy, Belgium, Poland and 12 other countries called for an EU gas price cap.

Since TTF futures prices are used as the reference price in LNG contracts, the hope is that capping TTF prices would mean lower prices for European gas imports. However, Germany and the Netherlands, both relatively wealthy and with large industrial sectors that are highly dependent on gas, oppose a cap.

The AFM also said the introduction of an alternative European benchmark - another Commission proposal - is something market participants do not appear to want, and which "will do little to address the fundamentals of excessive energy prices ... in the EU." The AFM said it did conditionally support another idea under consideration by the Commission, "circuit breakers" to limit large movements in prices on a single day and ensure orderly trading. However it argued that will not help lower prices.

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