Dutch regulator: TTF gas futures market is healthy, price cap unwise
AMSTERDAM, Nov 3 (Reuters) - 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 leading to physical shortages.
In its annual review of policy, the Financial Markets Authority (AFM) said that European gas prices have been driven by supply and demand since Russia's February invasion of Ukraine, and it has seen no sign of manipulation or excess speculation despite the sharp rise.
It warned that imposing a price cap on TTF futures could have "a negative impact on transparency, liquidity, risk mitigation and robustness of the market" as trades will move off exchanges in favour of over-the-counter deals.
"It may also lead to increased price uncertainty, and it could even affect the security of supply," the agency wrote, with a cap or price uncertainty pushing LNG producers to sell in markets outside Europe.
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 long-term 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 -- would be a long process that 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 added that breakers "are by no means a tool for lowering or stabilising prices". (Reporting by Toby Sterling; editing by Jason Neely)