EU Discusses Lowering Proposed Gas Price Ceiling, Media Reports

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FT: EU discusses lowering proposed gas price cap to €220/MWh

© RIA Novosti / Alexey Vitvitsky / Go to mediabankPipeline designed to transport Russian gas to the EU

Pipeline designed to transport Russian gas to the EU - RIA Novosti, 1920, 06.12.2022

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© RIA Novosti / Alexey Vitvitsky
Go to media bank
A pipeline designed to transport Russian gas to the EU. Archive photo
MOSCOW, December 6 – RIA Novosti. EU countries are considering lowering the proposed gas price ceiling from 275 euros per MWh (2,840 euros per thousand cubic meters at euro-dollar parity) to 220 euros per MWh (2,275 euros per thousand cubic meters), the newspaper writes. Financial Times.
On November 22, the European Commission proposed introducing a ceiling price for a monthly gas futures contract on the TTF index (the largest European hub located in the Netherlands) at the level of 275 euros per MWh.
Pipeline designed to transport Russian gas to the EU - RIA Novosti, 1920, 06.12.2022
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However, on November 24, EU energy ministers could not agree on a ceiling price and postponed a decision until a meeting scheduled for December 13.
“The EU authorities are in favor of lowering the price the bloc pays for gas by lowering the level of the limit proposed by Brussels by a fifth,” the newspaper said.
According to the paper’s draft document revising the proposal of the European Commission, the gas price cap will be triggered when the settlement price of the monthly futures on the index of Europe’s largest gas hub TTF exceeds 220 euros per MWh for five days and is 35 euros higher than the average LNG price.
Drilling rig in a shale gas field in Pennsylvania - RIA Novosti, 1920, 06.12.2022
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According to the previously proposed idea of ​​the European Commission, the mechanism should be launched under two conditions: the estimated price of a monthly futures contract on the index of Europe’s largest gas hub TTF exceeds 275 euros per MWh for two weeks (slightly more than 2.8 thousand dollars per thousand cubic meters of gas with parity of the euro and the dollar), and the spread between the TTF price and the global LNG price is at least 58 euros for 10 consecutive trading days.
When the mechanism is in place, the corresponding transactions at a price higher than 275 euros will not be made. However, this is a very high level. The settlement price of a monthly TTF futures exceeded 275 euros in the entire history of the existence of this hub for only a few days in August this year. So, on August 19, it was at a level of about 245 euros per megawatt-hour, jumped sharply to a historical maximum above 340 euros on August 26 (a little more than 3.5 thousand euros per thousand cubic meters) and quickly decreased, reaching about 265 euros already on August 30.
Even before the announcement of the price limit level, there were fears in the market that the launch of the mechanism would pose a threat to the financial stability of the European Union. The Association of European Energy Exchanges Europex noted that if the real gas price exceeds the artificially capped TTF futures price a month ahead, then market participants will immediately transfer trading to the bilateral off-exchange space. Such a move will not only lead to a significant decrease in the transparency of transactions, but also create serious risks for financial stability, the association explained.
The headquarters of the German concern RWE - RIA Novosti, 1920, 05.12.2022
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