London
CNN Business
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Europe has agreed to a natural gas price ceilingafter months of debate over whether the measure would protect European households and businesses from price spikes when temperatures plummet.
During a meeting on Monday, EU energy ministers agreed to trigger a ceiling on the price of natural gas futures next month on the Netherlands Transfer Facility (TTF) – the exchange block standard gas – to 180 € ($191) per megawatt hour if it exceeds this for more than three consecutive business days.
The limit will also apply to gas transactions for the next three months and a year, and it will remain in effect for at least 20 business days once activated. It is scheduled to take effect from February 15 next year.
“We have reached an agreement,” Jozef Síkela, deputy prime minister of the Czech Republic, said at a news conference on Monday. The Czech Republic currently holds the presidency of the EU Council.
The price cap is much lower than the €275 ($292) per megawatt-hour limit originally proposed by the European Commission last month.
The limit will also be activated if the price is at least €35 ($37) higher than the reference price for liquefied natural gas (LNG) in the same period. The price of LNG – a cooled, liquid gas that can be transported by tanker at sea – is closely linked to the price of European natural gas transported by pipeline.
Síkela describes the cap as “an effective, temporary solution [and] the actual mechanism that will protect people and businesses from the extreme gas prices we’ve seen this summer.”
“This is not a fixed limit, but a dynamic limit,” he added.
The ceiling is the latest in a series of measures agreed by the European Union this year to avert an energy crisis caused by Russia’s invasion of Ukraine that has driven up prices and boosted prices. highest inflation for many decades.
Gas prices spiked to a record high of around €345 ($367) per megawatt-hour in August, after Moscow reduced gas supplies to the continent. TTF gas futures fell back 5% on Monday, reaching 107€ ($114) per megawatt hour.
Other EU measures included Gas storage request and a hat price $60 a barrel for Russian seaborne oil.
Despite Monday’s political deal, analysts and traders remain concerned that the mechanism could backfire – causing prices to rise and potentially worsen. bow shock.
Germany, the bloc’s largest economy and one of the largest natural gas importers, was the most notable holder ahead of Monday’s announcement.
Gas traders will likely liquidate short positions and stop selling futures contracts if they fear a breakout may be about to be triggered, for fear of losses,” analysts at Eurasia Group said. in a note on Monday.
Following the announcement, a spokesperson for the Intercontinental Exchange, which operates TTF, said that it has “repeatedly expressed our concerns about the destabilizing impact [price cap] will be on the market.”
The spokesperson said that the exchange is reviewing the details of the new proposal and “whether [it could] continue to operate fair and orderly markets for TTF from the Netherlands.”
Trading on TTF will continue to operate as normal for the foreseeable future, they added.
In light of the concerns, Síkela said that the limit could be “automatically disabled” in some cases, including when gas consumption across the block is high, if transactions on the TTF drop, or if imports Quarterly LNG exports fell.
The proposal still requires a “qualified majority” to be implemented, meaning that 15 countries representing at least 65% of Europe’s population must agree to it.
