EU Sets Out Framework For Gas Price Cap

EU energy ministers reached an agreement on Monday on a Council regulation that sets a temporarily gas market correction mechanism to limit episodes of excessive gas prices starting from 15 February, according to the European Council.

• The market correction mechanism will be automatically activated if the month-ahead TTF price exceeds €180/MWh for three working days and the TTF price is €35/MWh higher than a reference price for LNG on global markets for the same three working days.
• While the mechanism is active, transactions of the natural gas futures that are within the scope of the MCM above a so-called 'dynamic bidding limit' will not be allowed to take place. The ‘dynamic bidding limit’ is the reference price for LNG on global markets plus €35/MWh. If the reference price for LNG is below 145€, the dynamic bidding limit will remain at the sum of 145€ and 35€.
• Once activated, the dynamic bidding limit will apply for at least 20 working days. If the dynamic bidding limit is below €180/MWh for last three consecutive working days, it will be automatically deactivated.
• The regulation introduces a correction mechanism on virtual gas trading platforms and the mechanism will apply to month-ahead, three months-ahead and a year-ahead derivative contracts.
• The LNG element of the cap is to make sure that Europe remains an attractive market for supplies. The cap will be in place during the summer when Europe is trying to refill its gas storage without a significant chunk of supply from Russia.
• Last summer, European gas was more than €35/MWh above LNG for several month.
• The Commission stands ready to suspend the gas price cap, if an analysis by regulators shows the risks of the measure outweigh the benefits, the EU energy commissioner, Kadri Simson said.
• "The Commission stands ready to suspend ex-ante the activation of the mechanism if an analysis from ECB, ESMA and ACER shows that the risks outweigh the benefits," she added.