The council agreed on a temporary mechanism to limit excessive gas prices
European Union energy ministers have reached a political agreement on a Council regulation establishing a market correction mechanism to protect citizens and the economy from excessively high prices. This 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 stability of financial markets.
We were able to reach an important agreement that will protect citizens from rising energy prices. We will implement a realistic and effective mechanism containing the necessary safeguards to prevent risks to security of supply and stability of financial markets. We proved once again that the EU is united and will not allow anyone to use energy as a weapon.
Josef SIKELA, Minister of Industry and Trade of the Czech Republic
Activation and deactivation
There will be a market correction mechanism is automatically activated if the following “market correction event” occurs:
– one month TTF (“Title Transfer Facility”) exceeds the price 180 EUR/MW three business days;
and
– is the price of one month’s TTF Above 35 euros at the reference price of LNG in world markets within the same three business days.
The mechanism will be applied from February 15, 2023. The European Union’s Agency for the Cooperation of Energy Regulators (ACER) will continuously monitor the markets and will publish a “correction notice market” on its website if it detects a market correction event.
While the mechanism is active Natural gas futures subject to the market correction mechanism above the “dynamic supply limit” will not be allowed to trade. The “dynamic supply limit” is the reference price of LNG on world markets (based on an international basket of LNG trading platforms) increased by 35 euros/MW. If the LNG reference price is below EUR 145, the dynamic supply limit will remain constant at EUR 145 and EUR 35.
Dynamic bid limit after activation will apply for at least 20 working days. If there is a dynamic bid limit less than €180/MW during the last three business days will be consecutive is automatically turned off.
There will be a dynamic bid limit automatically deactivated at any time during a regional or Union emergency It is declared by the European Commission in accordance with the Security of Supply Regulation, especially in a situation where the gas supply is insufficient to meet the demand (“bulking”).
In both cases, ACER will publish a “deactivation notice” on its website.
Suspension mechanism
Rules a suspension mechanism when risks are identified to the security of energy supply, financial stability, gas flows within the EU or risks of increased gas demand.
The Commission, ESMA and ACER will continuously monitor and review the functioning of the market correction mechanism from the date of entry into force of the Regulation, 1er February 2023. At any time such risks or market disruptions occur, The Commission will adopt an executive decision on the suspension of its activity market correction mechanism.
In particular, if gas demand increases by 15% in one month or 10% in two months, if LNG imports decrease significantly, or if trade volume on the TTF decreases significantly compared to the previous year, the market correction mechanism will be suspended. same time a year ago.
The suspension decision will be published in the Official Journal of the EU and will enter into force the following day.
Scope
The Regulation introduces a market correction mechanism for virtual gas trading platforms in the EU.
Member States have agreed to implement the mechanism derivatives with maturity of one month, three months and one year. This is the period during which the instrument can be bought at a certain price before it expires. The giveaway will not apply to OTC transactions (where participants trade directly between two parties without an exchange listing), overnight trading and intraday trading.
No later than 23 January 2023, ESMA and ACER will publish a preliminary report on the information on the implementation of the market correction mechanism. ESMA and ACER will assess the effects of the market correction mechanism on financial and energy markets and security of supply to check whether the key elements and scope of market correction are still appropriate, taking into account developments in financial and energy markets. as security of supply development and will report to the Commission before 1er March 2023. By 31 March 2023 at the latest, the Commission will propose amendments aimed at excluding platforms from the regulation if the inclusion of platforms other than the TTF adversely affects the functioning of the mechanism.
No later than 1er In November 2023, the Commission will review the regulation taking into account the general gas supply situation and, based on this report, may propose an extension of its validity period.
The text will be provided later.
Context and next steps
The regulation will now be officially adopted by the Council through a written procedure and published in the Official Journal of the EU.
The regulation will enter into force on February 15, 2023. The regulation is temporary and will be applied for one year.
On 22 November 2022, the Commission presented a proposal for a Council Regulation under Article 122 of the Treaty on the Functioning of the European Union for emergency situations.
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