Brussels proposes “last resort” mechanism that limits gas prices – World


The European Commission proposed, this Tuesday, a temporary limit of 275 euros per Megawatt-hour (MWh) on the main European natural gas exchange, a “mechanism of last resort” that will prohibit transactions from this amount, functioning as a “ceiling of security”.

“As a measure of last resort, this emergency proposal aims to address situations of excessive natural gas prices, establishing a maximum dynamic price at which natural gas transactions can occur in the TTF markets [principal bolsa europeia de gás natural] one month in advance, under specific conditions”, says the community executive in a proposal, released this Tuesday.

In the communication on the creation of a market correction mechanism to protect citizens and economies from high gas prices, Brussels then proposes a temporary “safety ceiling” to control gas prices in the FTT, explaining that “this limit will be activated if specific events occur in the market and will require constant monitoring”.

“Not only on a monthly basis to verify that the correction mechanism should be maintained, but also more systematic monitoring to ensure that there is not an undue impact […]in which case the correction mechanism must be immediately suspended”, adds the community executive.

Although natural gas prices have been between €5 MWh and €35 ​​MWh in the last decade, the values ​​negotiated in the TTF with one month in advance have been, in recent months, above €200/MWh and reached a peak of almost 314 euros/MWh last August 26th.

Considering these values, the European Commission suggests “a maximum limit for the following month of the FTT in case it exceeds 275 euros per MWh”, so that, from this value, “transactions cannot take place”, explained the European commissioner of Energy, Kadri Simson, at a press conference, on the sidelines of the plenary session, in the French city of Strasbourg.

Admitting that “this type of intervention in the market involves a series of risks”, Kadri Simson added that the proposal will now be the subject of “a significant debate with the Member States”.

“I believe that what we have proposed can find common ground between divergent points of view. It is not a quick solution that will bring gas prices down, but it constitutes a powerful instrument that we can use when we need it, complementing our more structural efforts to lower prices,” said the official.

The idea is, therefore, to move forward with this temporary mechanism to limit prices on the main European natural gas exchange, the TTF, while the European Commission works on a new complementary reference index, which it will present in early 2023, to include real market conditions. European market, such as the use of liquefied natural gas (LNG).

“The market correction mechanism must be designed in such a way that it fulfills two basic criteria: it acts as an effective instrument against episodes of extraordinarily high gas prices and it should only be activated if prices reach exceptional levels compared to global markets, the in order to avoid significant market disruptions and disruptions to supply contracts, potentially resulting in serious security of supply risks”, stresses the European Commission in the communication.

Geopolitical tensions due to the war in Ukraine have affected the European energy market because the EU is still dependent on Russian fossil fuels such as gas (despite having reduced imports by pipeline from 40% to less than 10%), fearing cuts and disruptions in the supply this winter.


Source: Correio da Manhã by www.cmjornal.pt.

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