Agreement concluded. EU member states on Monday approved a mechanism to cap wholesale gas prices as soon as they exceed 180 euros/MWh for three consecutive days, according to a statement from the European Council.
European energy ministers, meeting in Brussels, “have reached an important agreement that will protect citizens from soaring energy prices, with a realistic and effective mechanism, which includes the necessary guarantees for the security of supply and stability of financial markets,” said Czech Minister Jozef Sikela, whose country holds the rotating EU presidency. The Kremlin denounced an “unacceptable” decision. With strict conditions, the device, which will come into force on February 15 for one year, is “realistic and effective”, he said.
The objective is not to structurally reduce prices but “rather to function like the airbag of a car, to protect us in the event of an accident”, an exceptional surge in prices, insisted Belgian Minister Tinne Van der Straeten.
This capping mechanism, adopted by the Twenty-Seven after several weeks of tough discussions, 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 communicated. Once the mechanism is triggered, the operator of the TTF (the Dutch GTS) will have to block transactions above a certain threshold for one-month, three-month and one-year futures contracts.
An agreement to secure gas supply
They will no longer be able to be traded beyond a “dynamic ceiling”, corresponding to the international reference price of LNG (calculated on a basket of prices) plus 35 euros. This variable cap should prevent gas suppliers from abandoning Europe in favor of Asian customers paying more attractive prices. In addition to the TTF, the mechanism should be imposed after March on operators of other European trading platforms, but not on transactions carried out over the counter (excluding regulated markets).
The cap, activated by default for twenty days, will be automatically deactivated when the price of the monthly contract on the TTF drops below 180 euros, or if the EU declares a state of emergency for the supply of the EU. And the whole mechanism can be suspended in the event of “risks to gas supply, financial stability or intra-EU gas flows”.
The agreement “provides safeguards to preserve our security of gas supply and financial stability”, explained the French Minister for Energy Transition Agnès Pannier-Runacher. Paris was alarmed in particular to see the rise in margin calls, amounts that buyers must block to guarantee their transactions, at the risk of having no more cash.
“Given the safeguards, difficult to say the real impact. This is not a miracle solution: Europeans should focus on reducing their demand and renewables,” observed Simone Tagliapietra, expert from the Bruegel Institute. The monthly TTF contract was trading around 110 euros/MWh on Monday, after briefly soaring to around 300 euros in August.
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 where the cap will engage.
The European Commission had initially proposed to cap monthly contracts on the TTF reference market once they exceeded 275 euros/MWh for two consecutive weeks, among other conditions – factors never met, even at the height of the price surge. last August.
weeks of discussions
After tearing each other apart over this proposal, the Member States finally agreed on a much lower threshold, which will have to be reached during a significantly reduced period. Several States (Spain, Poland, Greece, Italy, etc.) had called for a marked relaxation of the conditions for activating the mechanism. On the contrary, reluctant to any intervention, other States (Germany, the Netherlands, Austria, etc.) demanded drastic “safeguards” to prevent a ceiling from threatening European supplies.
The risk being that the suppliers of liquefied natural gas (LNG) abandon Europe in favor of Asian customers paying for their gas at more attractive prices. 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 disruptions.
The agreement reached allows the States to formally adopt two other emergency texts intended to cushion the impact of the energy crisis. The first provides for group purchases of gas, in which consortia of companies would participate, in order to obtain better prices together, and a solidarity mechanism automatically ensuring the energy supply of countries threatened with shortages. The second simplifies the authorization procedures for renewable energy infrastructures.