EU Decides Gas Price Cap
EU energy ministers reached a political agreement on a Council regulation that sets a market correction mechanism to protect citizens and the economy against excessively high prices. The Regulation aims to limit episodes of excessive gas prices in the EU that do not reflect world market prices, while ensuring security of energy supply and the stability of financial markets.
The EU can suspend the mechanism as soon as there is a risk of supplies that seriously endanger the countries' economies.
Hungary voted against and Austria and Netherlands abstained. Putin reacts.
The EU can suspend the mechanism as soon as there is a risk of supplies that seriously endanger the countries' economies.
Hungary voted against and Austria and Netherlands abstained. Putin reacts.
by eEuropa
Brussels, 20 December 2022
Brussels, 20 December 2022
✔ The Political point
The found agreement was very difficult, because the starting positions were very distant.
First of all, whether it should concern only Russian gas or all gas. 15 countries demanded that it be applied to all imported gas and won. The Regulation covers all imported gas.
Furthermore, the Eastern EU countries were asking for a lower limit, around €80/MWh, in order to hit Russia hard. But they had to give in, otherwise Germany and France would veto them.
Other important discussions concerned the possibility of placing a limit on the price of LNG, which was later excluded, and of keeping the differential between gas and LNG lower, but realism prevailed over the desire to impose very harsh conditions on Russia.
The found agreement was very difficult, because the starting positions were very distant.
First of all, whether it should concern only Russian gas or all gas. 15 countries demanded that it be applied to all imported gas and won. The Regulation covers all imported gas.
Furthermore, the Eastern EU countries were asking for a lower limit, around €80/MWh, in order to hit Russia hard. But they had to give in, otherwise Germany and France would veto them.
Other important discussions concerned the possibility of placing a limit on the price of LNG, which was later excluded, and of keeping the differential between gas and LNG lower, but realism prevailed over the desire to impose very harsh conditions on Russia.
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✔ Activation of the price cap
The market correction mechanism will be automatically activated if the following 'market correction event' occurs:
The mechanism will apply as of 15 February 2023. The Agency for the Cooperation of Energy Regulators (ACER) will constantly monitor the markets and if it observes that a market correction event has occurred, it will publish a 'market correction notice' on its website. While the mechanism is active, transactions concerning the natural gas futures that are within the scope of the MCM above a so-called 'dynamic bidding limit' will not be allowed to take place. |
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The ‘dynamic bidding limit’ is the reference price for LNG on global markets (based on an international basket of LNG transaction hubs) plus 35€/MWh. If the reference price for LNG is below 143€, the dynamic bidding limit will remain at the sum of 143€ and 35€.
Once activated, the dynamic bidding limit will apply for at least 20 working days. If the dynamic bidding limit is below 180€/MWh for last three consecutive working days, it will be automatically deactivated.
The dynamic bidding limit will also be automatically deactivated, at any time, if a regional or a Union emergency is declared by the European Commission according to the security of supply regulation, notably in a situation where the gas supply is insufficient to meet the gas demand (‘rationing’). In both cases, ACER will publish a 'deactivation note' on its website.
Once activated, the dynamic bidding limit will apply for at least 20 working days. If the dynamic bidding limit is below 180€/MWh for last three consecutive working days, it will be automatically deactivated.
The dynamic bidding limit will also be automatically deactivated, at any time, if a regional or a Union emergency is declared by the European Commission according to the security of supply regulation, notably in a situation where the gas supply is insufficient to meet the gas demand (‘rationing’). In both cases, ACER will publish a 'deactivation note' on its website.
✔ Suspension mechanism cap
If there is a to security of energy supply, financial stability, intra-EU flows of gas, or risks of increased gas demand are identified, the mechanism can be suspended by a Commission implementing Decision. EU Agencies will monitor and review the functioning of the market correction mechanism from the day of entry into force of the regulation on 1 February 2023.
The market correction mechanism will be suspended, notably if:
If there is a to security of energy supply, financial stability, intra-EU flows of gas, or risks of increased gas demand are identified, the mechanism can be suspended by a Commission implementing Decision. EU Agencies will monitor and review the functioning of the market correction mechanism from the day of entry into force of the regulation on 1 February 2023.
The market correction mechanism will be suspended, notably if:
- gas demand increases by 15% in a month or 10% in two months
- LNG imports decrease significantly, or traded volume on the TTF drops significantly compared to the same period a year ago
