On Tuesday 22 November, the European Commission proposed a temporary mechanism to cap wholesale gas prices. She presented, under pressure from the Member States, including France, who are worried about soaring energy prices, a “market correction mechanism”.
To avoid runaway prices, this device aims to cap for one year, from January 1, the prices of monthly contracts, for delivery the following month, on the TTF Rotterdam Stock Exchange TTF. This European “Gas Exchange” is used as a reference in the majority of transactions by operators in the EU.
This mechanism would be put in place automatically as soon as the prices of the monthly contracts exceed 275 euros/MWh for two consecutive weeks. Beyond this amount, transactions would no longer be authorized. Another condition: the prices must be at least 58 euros higher than an “average world reference price” for liquefied natural gas for 10 days.
A very high threshold
Monthly contracts only exceeded 275 euros/MWh this year during a very brief period at the end of August, peaking at around 350 euros, when the Twenty-Seven were competing to fill their reserves. Prices are currently hovering around 120 euros.
“It is not about market interventions to set prices at artificially low levels: it is a mechanism of last resort.”
Kadri Simson, European Commissioner for Energyquoted by AFP
And to specify that the mechanism could be suspended at any time by Brussels “in the event of a risk to the security of supplies, to market stability or to the efforts of Europeans to reduce their gas demand”.
European energy ministers are due to meet on Thursday to decide on the Commission’s proposal. They could also adopt more consensual measures: an objective of common gas purchases at EU level, rules to guarantee solidarity between States in the event of a shortage, or even a text accelerating the issuance of authorizations for renewable energy infrastructure.