The energy ministers of the European Union (EU) debate this Thursday the proposal of the European Commission for a mechanism of last resort that will prohibit transactions from 275 euros per Megawatt-hour (MWh) in the main European natural gas exchange.
Announced this Tuesday, this “safety ceiling” proposal will be presented to the European ministers responsible for it by the European Commissioner for Energy, Kadri Simson, on which occasion the person in charge will explain what this market correction mechanism consists of, directed in limiting the peaks of excessive gas prices.
In this, which is the first discussion on the proposal, an agreement is not expected for now.
What is certain is that EU energy ministers will try to reach an agreement on two emergency measures previously proposed by the Commission to deal with the current energy crisis, one that concerns the strengthening of solidarity through a better coordination of gas purchases, cross-border exchanges and reliable reference prices, and another on streamlining licensing procedures for renewable energy projects.
Brussels wants to establish solidarity rules in the EU so that gas is available to all member states in an emergency, such as a disruption in Russian supply, ensuring that countries can access the reserves of others, especially since only 18 of the 27 countries of the Community bloc have storage infrastructures.
At the same time, the community executive intends to advance joint purchases of gas, counting on widespread support among the Member States for the creation of legal instruments for said joint purchases, similar to that carried out for anti-Covid-19 vaccines, but which should only advance in spring 2023.
In the case of the correction mechanism, which will be discussed for the first time, it is a “last resort measure” to deal with situations of excessive natural gas prices, establishing a maximum dynamic price at which transactions of natural gas one month in advance. progress in the markets of the TTF, the main European natural gas exchange.
The European Commission’s proposal then provides for a temporary “safety ceiling” to control gas prices in the TTF, and this limit will require permanent monitoring and will only be activated under two conditions: prices above 275 euros for two weeks and when the value is 58 euros higher than the reference price of liquefied natural gas (LNG) during 10 business days before the end of the two-week period considered.
Despite the fact that natural gas prices have been between €5MWh and €35MWh in the last decade, the values negotiated in the TTF one month in advance have been, in recent months, above €200/ MWh and reached a peak of almost 314 euros/MWh on August 26.
The idea is, therefore, to move forward with this temporary price limitation mechanism in the TTF, which plays a fundamental role in the European wholesale gas market, while the European Commission works on a new complementary reference index, which will be presented shortly in 2023. to include European market conditions, such as the use of LNG.
Geopolitical tensions over the war in Ukraine have affected the European energy market because the EU remains dependent on Russian fossil fuels such as gas (despite having reduced pipeline imports from 40% to less than 10%), for fear of cuts and supply disruptions this winter.
Portugal will be represented at the meeting by the Secretary of State for the Environment and Energy, João Galamba.
Source: TSF
