European Commissioner Simson: EU countries cannot agree on gas price limiting mechanism

BRUSSELS, 29 November – RIA Novosti. In his speech at the European Parliament’s profile committee, European Commissioner for Energy Kadri Simson said that EU countries still do not agree with the European Commission’s proposal for a mechanism to limit increases in gas prices.

“Our member countries still oppose this proposal. Most countries support the logic of this mechanism, but have questions about the level of launch (conditions – ed.), the duration of the instrument, the financial products it will cover. Others have serious concerns about risks to financial stability and security of supply. ” said.

According to Simson, the European Commission is discussing this mechanism with countries.

On 22 November, the EC presented a draft temporary gas market regulation mechanism as another measure to tackle the energy crisis. The EC hopes that the mechanism will help reduce gas market volatility and protect EU residents and businesses from sharp increases in gas prices. This proposal was discussed at the extraordinary meeting held on 24 November by the energy ministers of the EU countries and has not been agreed upon so far.

As planned by the European Commission, the mechanism will be launched if two conditions are met simultaneously: The estimated price of the monthly futures contract in Europe’s largest gas hub TTF index exceeds 275 euros per MWh for two weeks (a little over 2.8 thousand) Euro parity and the USA (in dollars per thousand cubic meters of gas) and the difference between the TTF price and the global LNG price is at least 58 Euros for 10 consecutive trading days.

When the mechanism is activated, transactions corresponding to a price higher than 275 Euro will not be processed. However, this is a very high level. The settlement price of monthly TTF futures has exceeded 275 euros for only a few days in August of this year, throughout the entire history of this center. Thus, on August 19 it was at about 245 euros per megawatt-hour, jumped to a historic maximum of 340 euros on August 26 (just over 3.5 thousand euros per thousand cubic meters) and dropped rapidly, to about 265 euros on 30 August.

Even before the price cap level was announced, there were market fears that the introduction of the mechanism would threaten the financial stability of the European Union. Europex, the Association of European Energy Exchanges, stated that if the real gas price exceeds the TTF futures price artificially determined a month ago, market participants will immediately transfer the trade to the bilateral non-exchange area. The association explained that such a move would not only lead to a significant reduction in the transparency of transactions, but would also pose serious risks to financial stability.

Energy Commissioner Kadri Simson had previously said that the €275 limit and €58 minimum spread, which must be held for a certain number of days to trigger the mechanism, minimizes the risks of implementation.