Europe's push to cap natural gas prices threatens to limit supplies to the region and intensify the energy crisis, Bloomberg reported.

European countries reached an agreement this week to cap gas prices, ending months of political debate over whether to intervene in the energy sector. But while the arrangement could help prevent sharp price swings, it could leave the region vulnerable to supply shortages and increased competition from Asia.

A price ceiling without an associated demand cap risks exacerbating Europe's gas supply shortages by stimulating consumption, according to a report by analysts at Goldman Sachs Group Inc. It could cut global supplies next year and, in a worst-case scenario, force governments to ration gas.

Besides, the restriction would make it difficult for the region's importers to substantially raise rates to secure liquefied natural gas supplies. The industry warned that LNG cargoes could be more profitable for Asia if prices there are higher than the caps in Europe, just as demand in China awakens after Covid restrictions are loosened.

LNG importers in Europe and Asia compete for supplies from the same exporters, such as the U.S. and Qatar. One advantage of the restriction is that it could reduce the likelihood of unrestrained bidding wars and spot price spikes between the two regions. Asian LNG prices closely follow changes in Europe, and the two markets have become closely linked over the past year.

The European measure, due to take effect in February, could be lifted if there are adverse consequences, as policymakers say the ceiling is designed to attract global suppliers. And the restriction does not apply to over-the-counter trading, which could lead to a big shift from exchanges to a less transparent market for privately negotiated contracts.

Meanwhile, Equinor ASA, Europe's largest gas supplier, confirmed that the price cap is unlikely to affect the Norwegian producer's exports.

The EU has agreed to cap gas prices at 180 euros per megawatt hour, or about $56 per million British thermal units. For the instrument to work, the benchmark contracts must be above the ceiling for three days, and to some extent above LNG prices. Had the ceiling been in place earlier this year, it would have been used for about 40 days in August and September.

Asian LNG prices traded above $56 per million Btu for about two weeks from August through September.