White smoke in Brussels. The energy ministers of the European Union (EU) have agreed on Monday to apply a ceiling of 180 euros per megawatt hour (MWh) to the price of gas imports. It has cost them 12 meetings and finally the mechanism has had the support of Germany, while the Netherlands and Austria have abstained and Hungary has opposed it.
The Member States have come to the meeting after the Heads of State issued an ultimatum to their minister at the last summit of the year in order to have a tool in 2023 to avoid excessive gas price spikes in the European market, as they come applying Spain and Portugal with the Iberian exception from June 15.
Specifically, they have sealed that the mechanism is activated when the gas price in the Dutch TTF, a reference in Europe, exceeds 180 euros/MWh for three days in a row and that, in addition, there is a price difference of 35 euros compared to with international markets. At that time, a “fully dynamic” price limit will come into effect, which is calculated as the sum of the global LNG market price plus 35 euros/MWh, explain sources from the Ministry for Ecological Transition.
On the contrary, it will be automatically deactivated when global prices fall below 145 euros/MWh for another three days in a row.
In what it does seem that they have agreed from the beginning was in criticizing the initial proposal of the European Commission. “We already established that the starting price of 275 euros was not really a price cap. Any number between 150 or 190-200 can work. I think 188 gave a good signal to the markets” Energia’s Konstantinos Skrekas.
According to the Ministry for Ecological Transition, the mechanism may be activated as of February 15 of next year. “The mechanism is defined as a price limit for natural gas derivative products (with duration from quarterly to annual) that have the TTF (Netherlands) market as their delivery point and are sold and bought in organized markets,” they point out. the same sources.
In addition, the Commission may extend the scope of the cap to other European markets before March 31, 2023, “as long as it is verified that it can be done safely.”
Spain has been one of the countries that has most defended this gas cap. 15 months ago I requested the measure in writing. The main stumbling block was that some countries respected that the gas price purchase limit should only apply to Russian gas, while another 15, including Spain, asked that it be applied ‘to all gas operations that arrive to the EU”
“Finally! We have just reached an agreement to establish a mechanism that facilitates a correction in natural gas prices if they soar again,” said the Spanish Third Vice President and Minister for the Ecological Transition, Teresa Ribera, through from your Twitter account.
The agreement also contains different safeguards to be able to deactivate the price ceiling in the following cases:
– Declaration of emergency at EU or regional level in the natural gas sector.
– Instability of the financial markets, particularly due to the detection of an increase in the guarantee requirements for companies that operate in the organized gas markets.
– Decrease in the arrival of LNG to the EU that affects security of supply.
– Significant increase in gas demand compared to previous years.
Alternative to the Dutch TTF
The Dutch TTF is no longer representative for Europe and Brussels is working on creating a basket of indicators, that is, establishing a more harmonized index that brings together the different ones that exist in the European Union (EU) for wholesale transactions.
The EU Energy Commissioner herself, Kadri Simson, has said that the Dutch index shoots up to 30% of the price of liquefied natural gas (LNG) above its real cost of production.
The TTF was founded by the Dutch company Gasunie Transport Services (GTS) in 2003. Two types of natural gas are mainly exchanged on it: L-Gas, which is produced internally and used in the Dutch market and small commercial customers, and H-Gas, produced offshore and imported from Norway, the United Kingdom or Russia and consumed by the industrial generation market or exported to other countries.
For its part, the Iberian exception applied by Spain and Portugal sets a path for natural gas for electricity generation at a price of 40 euros/MWh in the initial six months of application, while the price will increase by five euros until reaching 70. Thus, each hour that electricity is generated with gas, if its real cost is higher than these 40 euros/MWh, the producers are remunerated for that difference.