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UPDATE 2-Spain's energy minister says Europe nearing gas benchmark consensus

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Alternative benchmark less divisive than price cap

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Possible all would support new benchmark plan

(Adds comments by Spain's energy minister, details on proposed Pyrenees pipeline)

By Belén Carreño

MADRID, Oct 7 (Reuters) - Spain's energy minister said European leaders meeting in Prague on Friday were nearing consensus on an EU gas pricing system that would create an alternative to the current benchmark and effectively cap prices.

Heads of state from across Europe met in Prague to discuss how to combat soaring energy prices caused by the Ukraine war. The European Union hopes to reach an agreement on electricity market reform within two weeks to ease the impact of gas prices in power generation systems.

The proposals include a cap on gas prices, backed by the majority of EU states but opposed by Denmark, Germany and the Netherlands which worry it would make it difficult to buy the gas their economies need and curb any incentive to reduce consumption.

Spain's energy minister, Teresa Ribera, told Reuters in an interview that the opponents of a gas cap needed to accept that Europe faces "a disaster."

She also said the leaders were moving towards a consensus on an alternative benchmark price to the Dutch Title Transfer Facility (TTF) gas price that could effectively smooth over differences.

The new benchmark will be "a basket of indicators that allows us (EU) to have something that adapts in a flexible way. It is not an absolute fixed price," said Ribera, adding the system would substitute the cap proposal.

"It actually acts as a cap," she said.

Historically, the TTF has been used as a benchmark for the delivery of pipeline and Liquified Natural Gas (LNG) into Europe, but the shifting supply landscape since the Ukraine conflict has distorted it.

"We still don't have black on white on paper what is going to happen," Ribera said. "But this is a possibility on which we detect that there is greater consensus and greater openness on the part of all."

Ursula von der Leyen, the president of the European Commission, in a letter to EU leaders on Wednesday suggested they consider a temporary price cap while the Commission works on an alternative benchmark.

PIPELINE POLITICS

Another point of critical dissent between European leaders is the construction of new infrastructure, such as a gas pipeline across the Pyrenees known as the MidCat, which France opposes, resisting pressure from Germany and Spain.

Ribera said French President Emmanuel Macron - who on Friday said he would meet the Spanish and Portuguese leaders next week to discuss the topic - had been opposed to the pipeline because of "national interest," amid potential competition for his country's nuclear-generated power and nascent hydrogen production industry.

"I have yet to see a reflection on the European interest, a willingness to be open to look for alternatives, something that I agreed with his minister," Ribera said.

She said it would be more "honest" to discuss the technical differences openly.

"We have the impression that France may see itself as a major producer and exporter of hydrogen generated from new nuclear power plants ... I am sure that is also part of the equation," Ribera said.

Some European leaders have posited that an undersea gas pipeline between Spain and Italy as an alternative, but Ribera said that would take years to implement and would not solve the supply problems of the winter of 2024, something that the MidCat could achieve.

(Reporting by Belen Carreno in Madrid Editing by Aislinn Laing, Barbara Lewis and Matthew Lewis)