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News 28 November 2022

EU energy crisis measures on hold because of stalemate over gas price cap

The EU Commission proposed on Tuesday last week a Market Correction Mechanism to shield the EU from gas price spikes and reduce the volatility of markets. The proposal would see a safety price ceiling of €275 on the month-ahead Transfer Title Facility (TTF) derivatives intervening automatically in case of higher prices on the gas market. The mechanism would be triggered in case two conditions are met: 

  • The front-month TTF derivate settlement price exceeds €275 for two weeks; 

  • TTF prices are €58 higher than the LNG reference price for ten consecutive trading days within the two weeks. 

Notwithstanding the measures, market operators will still be able to meet demand requests and procure gas on the spot market and over-the-counter by limiting the application of the price ceiling to only one futures product (TTF month-ahead products). In parallel, Member States would be required to notify within two weeks from the application of the mechanism the measures taken to reduce overall gas demand. To avoid possible adverse effects on the markets, the Market Correction Mechanism could be suspended immediately at any time. The suspension would be automatic when there is no longer a need to set a cap, or “manual” by a Commission decision if the enforcement of the mechanism would put at risk the EU’s energy supply.  

However, what promised to be a solution that worked for all countries turned sour when debated during the last energy council meeting in Brussels (this 24 November). The negative reaction is widespread: countries who had been calling for intervention are disappointed by the high trigger threshold (the current proposal would not have come into force this summer, when prices reached some of the highest levels ever recorded), while countries that never wanted the price cap in the first place are opposing the proposal in its entirety.  

After the meeting, energy ministers will gather again in December to move forward on the matter. According to sources, an alliance composed of Belgium, Spain, Italy, Poland and Greece made clear that they would not formally agree to the broader Commission’s energy crisis package until the gas price cap issue had been resolved, two diplomats said. Such package includes two other important aspects, namely the simplification of permitting procedures for renewable energy projects and the energy crisis solidarity plan (e.g., joint gas purchases, exchanges of gas across borders and reliable price benchmarks for liquified natural gas), on which an informal agreement among the energy Ministers has already been found. Therefore, it remains now to be seen whether EU citizens will find an answer to rising prices under this year’s Christmas tree, or whether discussions will collapse and bring forward the current crisis.