European Gas Prices Continue to Fall After EU Announces Price Cap Measures

European natural gas futures fell to a one-month low on Thursday, accelerating the pace of declines after the European Union proposed measures to lower wholesale energy prices ahead of the looming winter energy crisis.

As of 03:00 ET (07:00 GMT), the front-month Dutch TTF front-month contract, which serves as a benchmark for northwest Europe, was down 5.1% to EUR 201.00 per megawatt/hour, bouncing slightly from a one-month low of EUR 196.05/MWh at the open. TTF futures are down more than 40% from their peak last month, despite confirming fears that Russia will cut all energy supplies to Europe next winter. Benchmark electricity prices are also lower: Fourth-quarter baseload futures for Germany fell from an August peak of EUR 1,000/MWh to EUR 635/MWh on Wednesday, while baseload prices for the full calendar year 2023 closed at EUR 556/MWh. However, these prices are still well above the levels before Russia's invasion of Ukraine and are widely seen as unsustainable for the European economy. In Germany, Europe's largest economy, the energy-intensive industry is already in deep recession, with output falling by around 7% between February and July. Kiel-based research institute IfW said on Thursday it expects the German economy to shrink by 0.7% next year due to the energy crisis, having previously forecast growth of 3.3%. It predicts average inflation will rise to 8.7% from 8.0% this year due to the same factors. On Wednesday, the European Commission outlined plans to effectively overhaul the way Europe's wholesale energy markets work, proposing a cap on the amount that non-fossil fuel generators and Russian gas monopoly Gazprom (MCX:GAZP) can buy for their output. The Commission proposed imposing windfall taxes on generators and oil and gas companies that would allow governments to bail out households and businesses from rising energy bills. The Commission also proposed a mandatory curtailment of peak demand, aimed at reducing the amount of power needed from gas-fired electricity generators on any given day. The flexibility of gas generators to increase and decrease generation means that they almost always set the marginal price on the spot market. The Commission's measures, pre-announced by national proposals, will be discussed at a meeting of EU Energy Ministers on Friday. Follow Global Economic Developments on Social Media! Click here to follow Ieconomy official Facebook account! Click here to follow Ieconomy official Instagram account! Click here to follow Ieconomy official Twitter account!