Clearly, the European Commission does not want to hear about anything that, one way or another, comes close to capping the price of gas. Under pressure from Member States who are concerned about the economic and social consequences of the surge in prices, it certainly presented, on Tuesday 22 November, a “market correction mechanism” whose philosophy is precisely to prevent this energy from flying away excessively. But she made sure that this device could only be used in extreme situations. “For example, if a pipeline is destroyed on Saturday night and on Monday morning the markets go into overdrive”details a European diplomat.
“This mechanism is supposed to avoid gas price spikes comparable to last August”, hammers the community executive, but not to bring down prices permanently. In reality, even if this summer’s scenario were to repeat itself, the way in which the “correction mechanism” was calibrated would not allow it to be activated as it stands. As a European civil servant said, it was designed as an instrument of “deterrence” who, “in an ideal situation, will never be activated”.
The Commission proposes that from 1is January 2023 and for one year, transactions on the European gas market are prohibited if the price of the contract (for delivery in one month), which is traded on the TTF Rotterdam Stock Exchange and is used as a reference on the Old Continent, exceeds 275 euros per megawatt hour (MWh) for two weeks. Today, it is less than 110 euros and, in a year, the market will value it at around 125 euros.
Germany and the Netherlands win
This circuit breaker, on the model of what exists on the equity markets, will only be triggered if another condition is met: the price of the one-month TTF must have exceeded by at least 58 euros, and this during ten consecutive days, that of the world gas market. This is to ensure that liquefied natural gas suppliers are encouraged to sell in Europe even if their revenues were to be temporarily capped there.
The majority of Member States, supporters of a gas price cap, were campaigning for a cap of between 150 and 180 euros per MWh. Germany, the Netherlands, Denmark and Hungary, on the other hand, opposed to this idea, wanted it to be higher so as not to compromise the security of their supply. This second camp therefore won its case.
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