After several weeks of tough discussions, the member states of the European Union approved on Monday a mechanism to cap gas prices when they exceed 180 euros per MWh for three consecutive days.
The European energy ministers meeting in Brussels have reached “an important agreement” with “a realistic and effective mechanism”, indicated the Czech Minister Jozef Sikela, whose country holds the rotating presidency of the EU.
The first condition for a cap is that the price per megawatt hour (MWh) must exceed 180 euros per MWh on the European reference market, the Dutch financial platform TTF.
Second condition, this capping mechanism will only be activated at a price level at least 35 euros higher than the average international price of liquefied natural gas (LNG), specifies the press release from the European Council.
Finally, these two conditions must be met for three consecutive days. According to Jozeph Sikela, this mechanism will also “guarantee the stability of the financial markets”.
Better protection
The Ministers of the Twenty-Seven had already agreed on December 13 on certain terms of the mechanism, which will apply to futures contracts on the gas markets. But they still had to agree on the price at which the cap would kick in.
The European Commission had initially proposed a threshold of 275 euros/MWh for two consecutive weeks, among other conditions. Either factors that have never actually been met even at the height of the surge in prices. Several States, including Spain, Poland, Greece and Italy had thus demanded a marked relaxation of the conditions for activation.
After tearing each other apart over this proposal, the Member States finally agreed on this much more protective threshold of 180 euros/MWh for three days. By way of comparison, the contract for delivery over one month was trading around 110 euros/MWh on the TTF on Monday.
The final mechanism is however “a little less complicated than what we might have feared at the start of these negotiations”, estimates the correspondent of the RTS in Brussels Pierre Bénazet.
“Safeguards” requested
Other states more resistant to political intervention (Germany, the Netherlands, Austria, etc.) demanded drastic “safeguards” to prevent a ceiling from threatening European supplies. They fear that LNG suppliers are abandoning Europe in favor of Asian customers.
To remedy this, the States agreed to activate the cap only with a price higher than the international price of LNG and to provide for automatic deactivation in the event of unforeseen disturbances.
ats/jop
