Goldman Sachs: A Lower TTF Cap Means A Higher Risk Of Market Disruption

Goldman Sachs note that “the TTF price cap EU energy ministers agreed to today sets a price limit at 180 EUR/MWh, well below the 275 EUR limit proposed last month, to be implemented from Feb 15th, 2023. This in our view significantly increases the likelihood the price cap is triggered vs the previous proposal, hence significantly increasing the risk of a market disruption event. To be clear, as we have argued previously, a price cap without an associated cap to demand not only does not solve the gas deficit in Europe but also risks making the ongoing deficit worse by incentivizing consumption. Further, capping gas prices at the exchange level in particular has added detrimental effects, such as (1) further reducing liquidity in an already liquidity-poor market; (2) increasing the risk of a reduction in gas supply, and (3) disrupting commercial risk management.”