Council agrees on temporary mechanism to limit excessive gas prices
EU energy ministers reached a political agreement on a Council regulation that sets a market correction mechanism to protect citizens and the economy against excessively high prices.
The 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 the stability of financial markets.
We have succeeded in finding an important agreement that will shield citizens from skyrocketing energy prices. We will set a realistic and effective mechanism, which includes the necessary safeguards that will steer us clear from risks to security of supply and financial markets stability. Once again, we have proved that the EU is united and will not let anybody use energy as a weapon.Jozef SÍKELA, Czech minister of industry and trade
Activation and deactivation
The market correction mechanism will be automatically activated if the following 'market correction event' occurs:
- The month-ahead price on the Title Transfer Facility (TTF) exceeds 180€/MWh for three working days;
and
- The month-ahead TTF price is 35€ higher than a reference price for LNG on global markets for the same three working days.
The mechanism will apply as of 15 February 2023. The Agency for the Cooperation of Energy Regulators (ACER) will constantly monitor the markets and if it observes that a market correction event has occurred, it will publish a 'market correction notice' on its website.
While the mechanism is active, transactions concerning the natural gas futures that are within the scope of the MCM above a so-called 'dynamic bidding limit' will not be allowed to take place. The ‘dynamic bidding limit’ is the reference price for LNG on global markets (based on an international basket of LNG transaction hubs) plus 35€/MWh. If the reference price for LNG is below 143€, the dynamic bidding limit will remain at the sum of 143€ and 35€.
Once activated, the dynamic bidding limit will apply for at least 20 working days. If the dynamic bidding limit is below 180€/MWh for last three consecutive working days, it will be automatically deactivated.
The dynamic bidding limit will also be automatically deactivated, at any time, if a regional or a Union emergency is declared by the European Commission according to the security of supply regulation, notably in a situation where the gas supply is insufficient to meet the gas demand (‘rationing’).
In both cases, ACER will publish a 'deactivation note' on its website.
Suspension mechanism
The regulation includes a suspension mechanism, if risks to security of energy supply, financial stability, intra-EU flows of gas, or risks of increased gas demand are identified.
The Commission, ESMA and ACER will constantly monitor and review the functioning of the market correction mechanism from the day of entry into force of the regulation on 1 February 2023. At any time, when such risks or market disturbances materialise, the Commission will adopt an implementing decision to suspend the market correction mechanism.
The market correction mechanism will be suspended, notably if gas demand increases by 15% in a month or 10% in two months, LNG imports decrease significantly, or traded volume on the TTF drops significantly compared to the same period a year ago.
The suspension decision will be published in the EU's Official Journal and enter into force on the next day.
Scope
The regulation introduces a market correction mechanism on virtual gas trading platforms in the EU.
Member states agreed that the mechanism will apply to month-ahead, three months-ahead and a year-ahead derivative contracts. This refers to the time during which the contract can be purchased at a certain price before it expires. The ceiling will not apply to over-the-counter (OTC) trades (where participants trade directly between two parties, without being listed on an exchange), day-ahead exchanges and intra-day exchanges.
By 23 January 2023, ESMA and ACER will publish a preliminary data report concerning the introduction of the market correction mechanism. ESMA and ACER will assess the effects of the market correction mechanism on financial and energy markets and on security of supply, to verify whether the key elements and the scope of the market correction mechanism are still appropriate in the light of financial and energy market and security of supply developments, and submit reports to the Commission by 1 March 2023. The Commission shall then propose amendments to exclude hubs other than the TTF from the regulation in case their inclusion has negative effects on the functioning of the mechanism, no later than 31 March 2023.
By 1 November 2023, the Commission will carry out a review of the regulation in view of the general situation of the gas supply and based on that report, it may propose to extend its validity.
The text will be made available later.
Background and next steps
The regulation will now be formally adopted by the Council by written procedure and published in the EU Official Journal.
The regulation will enter into force on 15 February 2023. The regulation is temporary and will apply for one year.
The Commission presented a proposal for a Council regulation on 22 November 2022 under article 122 of the Treaty on the functioning of the EU, designed for emergency situations.