EU energy ministers agree price cap on natural gas

Energy ministers from the European Union member states agreed late on December 19 a proposal for a new Council regulation that would “limit episodes of excessive gas prices in the EU that do not reflect world market prices.”

In a statement, the Council of the EU said that the “market correction mechanism will be automatically activated” if two conditions are met – the month-ahead price on the Dutch TTF virtual hub exceeds 180 euro a MWh for three working days and if the month-ahead TTF price is 35 euro higher than a reference price for liquefied natural gas (LNG) on global markets for the same three working days.

The mechanism will apply starting February 15 2023 and will apply for one year.

If the mechanism is activated, the price cap will stay in effect for at least 20 working days and automatically deactivate if the price is below 180 euro a MWh for the last three consecutive working days of that period.

It can also be automatically deactivated if “a regional or a Union emergency is declared by the European Commission according to the security of supply regulation,” the Council of the EU said in its statement.

The regulation includes a suspension mechanism, if risks to security of energy supply, financial stability, intra-EU flows of gas, or risks of increased gas demand are identified.

The price cap agreed by the EU energy ministers is significantly below the one proposed by the European Commission last month, under which the mechanism would activate if the “front-month TTF derivative settlement price” exceeded 275 euro a MWh for two weeks.

But the second condition, concerning the global LNG prices, is meant to ensure that the price cap does not send gas cargoes away from European regasification terminals.

(Photo: Jayesh Nair)

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