EU agreed to limit gas prices-who will sell
2022.12.20 04:07
EU agreed to limit gas prices-who will sell
Budrigannews.com – After weeks of discussions on the emergency measure, which has divided opinion across the bloc as it seeks to tame the energy crisis, European Union energy ministers agreed on Monday to a gas price cap.
The EU’s latest attempt to lower gas prices is the cap. This comes after Russia cut off most of its gas deliveries to Europe, causing energy bills to rise and inflation to reach a record high this year.
The Dutch Title Transfer Facility (TTF) gas hub’s front-month contract, which serves as the European benchmark, will be subject to a cap if prices exceed 180 euros ($191.11) per megawatt hour for three days.
Additionally, the TTF price must be 35 eur/MWh higher than a reference price based on three-day price assessments of liquefied natural gas (LNG).
Jozef Sikela, the industry minister for the Czech Republic, which currently holds the rotating presidency of the EU, stated, “We have succeeded in finding an important agreement that will shield citizens from skyrocketing energy prices.”
The cap can be activated on February 15, 2023. After countries have signed off on the agreement in writing, it can go into effect.
Trades on the front-month, three-month, and front-year TTF contracts at a price greater than 35 euros/MWh above the reference LNG price would be prohibited once triggered.
This system ensures that EU nations can still bid at competitive prices for gas imported from global markets by effectively limiting the price at which gas can be traded and allowing the capped level to fluctuate with global LNG prices.
Three EU officials stated that Germany voted in favor of the agreement despite raising concerns about the policy’s impact on Europe’s ability to attract gas supplies in price-competitive global markets.
An EU official told Reuters Germany consented to the cost cap after nations concurred changes to one more guideline on accelerating sustainable power licenses, and more grounded shields were added to the cap.
The cap will be lifted in the event of a gas shortage in the EU, a decrease in TTF trading, an increase in gas consumption, or a significant increase in margin calls made by participants in the gas market, among other safeguards.
Energy companies across Europe have been rocked by rising gas and electricity prices, requiring traders and utilities to obtain additional funds from governments and banks to meet margin call requirements.
As it rushed to fill the void left by Russia’s supply cut, Germany’s Uniper has recorded billions of euros in derivatives losses, escalating the crisis.
According to senior associate Jacob Mandel of Aurora Energy Research, the TTF front-month contract has only closed above 180 eur/MWh 64 times in its history. All of that occurred in 2022.
According to two EU officials, only Hungary opposed the price cap.
Austria and the Netherlands did not vote. During the negotiation process, both had resisted the cap out of concern that it might disrupt Europe’s energy markets and jeopardize the continent’s energy security.
Rob Jetten, the Dutch minister of energy, stated: The market correction mechanism remains potentially risky, despite recent progress.”
He continued, “I remain concerned about major disruptions on the European energy market, about the financial implications, and, most importantly, about European supply security.”
Some market participants have also voiced their opposition to the EU proposal, claiming that it could lead to financial instability.
The NYSE: The Intercontinental Exchange which hosts TTF trading on its Amsterdam exchange said last week that if the EU caps prices, it could move TTF trading outside of the EU.
It said on Monday that it will look into whether it can continue to run markets for TTF gas hub trading that are fair and orderly. The ICE TTF markets will continue to trade normally for the time being.
According to Refinitiv Eikon data, the front-month TTF gas price ended Monday’s trading 9 percent lower at 107 euros/MWh.
In August, the contract reached a record high of 343 euros, which prompted the EU to proceed with its price cap.
Italy’s energy authority ARERA expects further expansions in gas costs as the colder time of year season kicks in, its Leader Stefano Besseghini said on Monday.
In the meantime, Russia’s Interfax news agency reported that Russia’s Kremlin spokesman Dmitry Peskov said the cap was an attack on market pricing and unacceptable.
The agreement comes after months of discussion about the idea and two previous emergency meetings that failed to reach an agreement between EU countries who disagreed about whether a price cap would help or hinder Europe’s efforts to control the energy crisis.
A cap of less than 200 euros per megawatt-hour (MWh) had been requested by roughly 15 nations, including Poland, Greece, and Belgium. This was significantly less than the 275 euros per megawatt-hour trigger limit that the European Commission had originally proposed last month.
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The price cap, according to Poland’s prime minister, would bring an end to Russia and Gazprom. its capacity to sway the market.
Mateusz Morawiecki posted on Twitter, “At the recent meetings in Brussels, our majority coalition managed to break the resistance, mainly from Germany.” This means that Russia and Gazprom will no longer be able to manipulate the market.”
