Business & Economy

EU countries reach agreement on natural gas price cap

Brussels, Dec 19 (EFE).- European Union countries on Monday reached an agreement to cap wholesale natural gas prices starting Feb. 15.

The move is aimed at addressing an energy crisis stemming from Russia’s invasion of Ukraine and Moscow’s refusal to supply the EU with fossil fuels in retaliation against sanctions imposed on it by the 27-nation bloc.

Most EU nations voted in favor of the cap during a meeting of energy ministers, although Hungary was opposed and the Netherlands and Austria abstained, European and diplomatic sources said.

Once implemented, the “market correction mechanism” will apply to month-ahead, three-months-ahead and year-ahead derivative contracts and be activated on two conditions, the Council of the EU said in a statement.

Firstly, the month-ahead price on the Dutch Title Transfer Facility (TTF) – the EU’s benchmark natural gas exchange – must exceed 180 euros ($191) per megawatt hour for three consecutive working days.

And secondly, the month-ahead TTF price must be 35 euros higher than a reference price for liquefied natural gas on global markets for that same three-day period.

Once activated, the price cap would apply for at least 20 business days, although it would be automatically deactivated if the LNG reference price plus 35 euros/MWh falls below 180 euros/MWh for the last three consecutive business days or if the European Commission declares a regional or EU emergency.

In either case, the EU’s Agency for the Cooperation of Energy Regulators would deactivate the mechanism, which also would cease to function if the European Commission identifies risks to financial stability, security of energy supply, intra-EU flows of gas or increased gas demand – key concerns of Germany, which was reluctant to accept the price cap.

In another safeguard built into the agreement, the market correction mechanism will be deactivated if natural gas demand increases by 15 percent in one month or by 10 percent in two months, LNG imports decline significantly or traded volume on the TTF falls significantly relative to the same period of the previous year, the Council of the EU said.

Prior to Nov. 1, 2023, the European Commission will review the mechanism in view of the general natural gas supply situation and may propose an extension of its validity beyond an initial 12-month time frame.

“Finally! We have just reached an agreement to establish a mechanism that facilitates a correction in natural gas prices if they soar again,” said Teresa Ribera, Spain’s third deputy prime minister and the minister for the ecological transition and the demographic challenge.

For his part, Jozef Sikela, industry and trade minister of the Czech Republic, which holds the presidency of the Council of the EU, celebrated a “mission impossible accomplished.”

“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,” he added.

“Once again, we have proved that the EU is united and will not let anybody use energy as a weapon.” EFE

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