Europeans agree to cap wholesale gas prices

EU member states have approved, after a month of tough negotiations, a temporary mechanism to cap wholesale gas prices.

Share:

EU member states have agreed, after a month of tough negotiations, to a temporary mechanism to cap wholesale gas prices, a deal that unlocks other emergency measures to make joint gas purchases and boost renewable energy.

This measure, adopted by the European Energy Ministers, aims to block transactions on the wholesale markets above a certain threshold, and thus prevent any price surge that would be passed on to businesses and consumers.

The objective is not to structurally reduce prices but “rather to work like the airbag of a car, to protect us in case of an accident”, of exceptional price surge, insisted the Belgian minister Tinne Van der Straeten.

Subject to strict conditions, the scheme, which will come into force on 15 February for one year, is “realistic and effective”, said Czech Minister Jozef Sikela, whose country holds the rotating EU presidency.

180/megawatt-hour for three consecutive days on the Dutch electronic platform TTF, the “gas exchange” whose prices are used as a reference for most wholesale transactions in Europe.

Another condition for activation is that the price must be at least 35 euros higher than the international price of liquefied natural gas (LNG).

Not a miracle solution

Once the mechanism is activated, the TTF operator (the Dutch GTS) will have to block transactions above a certain threshold for one-month, three-month and one-year futures contracts.

They will no longer be able to trade above a “dynamic ceiling”, corresponding to the international reference price of LNG (calculated on a basket of prices) plus 35 euros.

This variable cap is intended to prevent gas suppliers from abandoning Europe in favor of Asian customers paying more attractive prices.

In addition to the FTT, the mechanism should be imposed after March on operators of other European trading platforms, but not on OTC transactions (outside regulated markets).

The cap, set by default for 20 days, will be automatically deactivated as soon as the monthly TTF contract price falls below 180 euros, or if the EU declares a state of emergency for EU supplies. And the entire mechanism may be suspended in case of “risks to gas supply, financial stability or intra-EU gas flows”.

The agreement “provides safeguards to preserve our security of gas supply and financial stability,” explained the French Minister of Energy Transition Agnès Pannier-Runacher.

In particular, Paris was alarmed to see margin calls, the amounts that buyers must block to guarantee their transactions, rise, at the risk of running out of liquidity.

“Given the safeguards, it is difficult to say what the real impact will be. It is not a miracle solution: Europeans should focus on reducing their demand and renewables,” observed Simone Tagliapietra, an expert at the Bruegel Institute.

The monthly TTF contract was trading around 110 euros/MWh on Monday, after briefly soaring to around 300 euros in August.

Norway, a major supplier to the EU, recalled “the importance of choosing market-friendly measures”.

Against the backdrop of the collapse of European purchases of Russian gas, Moscow has condemned an “unacceptable” decision.

Group purchases

The Commission had initially proposed to cap certain gas contracts when they exceeded 275 euros/MWh for two consecutive weeks – factors that never came together, even during the surge last August.

Several countries (Spain, Poland, Greece, Italy, etc.) have called for the conditions for activation to be relaxed. On the contrary, other states (Germany, the Netherlands…) were reluctant to intervene and demanded drastic “safeguards” to avoid threatening supplies.

Berlin, which was reluctant for a long time, finally approved the compromise: “We have enough instruments to use this mechanism in an intelligent and targeted way,” said German Minister Robert Habeck.

The agreement reached allows the ratification of two other emergency texts, already approved by the States but whose formal adoption remained suspended on a decision on the gas price cap.

The first provides for grouped gas purchases, in which consortia of companies can voluntarily participate in order to obtain better prices together, as well as a solidarity mechanism that automatically ensures the energy supply of countries threatened by shortages.

The second one simplifies for one year the procedures of authorizations of installation for renewable energies (in particular solar and heat pumps).

A structural reform of the European electricity market, aimed at decoupling it from gas prices, will also be proposed by the Commission in early 2023.

Italian group Eni signs a twenty-year liquefied natural gas supply contract with US-based Venture Global, covering two mn tonnes per year and marking a first for the company from the United States.
The discovery of the Gajajeira field marks a major step for Angola, strengthening its natural gas development strategy and diversifying national energy resources in a context of sector transition.
The Voskhod vessel, under US sanctions, docked at the Arctic LNG 2 plant in Russia, marking the second visit by a sanctioned ship to the site this year, according to maritime tracking data.
Japan has urgently secured several additional cargoes of liquefied natural gas from the United States to avert an imminent electricity supply shortage caused by rapidly declining national reserves expected at the end of July.
The European Commission has unveiled a proposal to prohibit the import of Russian gas into the Union, sparking intense debate on its feasibility, contractual impact and consequences for supply security among several Member States.
CNOOC Limited announces the discovery of a significant oil and gas reservoir in the buried hills of the Beibu Gulf, opening new opportunities for shallow water exploration off the coast of China.
TotalEnergies’ Mozambique LNG gas project is at the centre of a legal challenge in Washington, following the approval of a $4.7 bn loan by the US Exim Bank, amid security concerns and opposition from civil society groups.
Investors are closely watching U.S. midstream companies’ announcements regarding new gas pipeline expansions targeting promising markets in the West and Northeast, beyond traditional regions in Texas and the Southeast.
PPL Corporation and Blackstone Infrastructure announce a strategic partnership to develop new gas-fired power plants to supply electricity to data centers through long-term contracts in Pennsylvania.
Falcon Oil & Gas Ltd announces a new record initial flow test result at the Shenandoah S2-2H ST1 well and the start of its 2025 drilling campaign in the Beetaloo Basin.
Technip Energies has secured a contract to lead preparatory works for a floating liquefied natural gas unit in Africa, confirming its presence in the international gas infrastructure market.
The Slovak government is seeking guarantees from the European Union to secure its supplies as talks continue over ending Russian gas and adopting a new round of sanctions.
ArcLight Capital Partners announces the acquisition of Middletown Energy Center, a combined-cycle natural gas power plant, aimed at meeting the substantial rise in energy demand from data centers and digital infrastructure in Ohio.
The commissioning of LNG Canada, the first major Canadian liquefied natural gas export facility led by Shell, has not yet triggered the anticipated rise in natural gas prices in western Canada, still facing persistent oversupply.
Horizon Petroleum Ltd. is advancing towards the production launch of the Lachowice 7 gas well in Poland, having secured necessary permits and completed preliminary works to commence operations as early as next August.
European Union member states have requested to keep their national strategies for phasing out Russian gas by 2027 confidential, citing security concerns and market disruption risks, according to a document revealed by Reuters.
TotalEnergies becomes a member of PJM Interconnection, expanding its trading capabilities in North America's largest wholesale electricity market. The decision strengthens the company's presence in the United States.
Turkey has connected its gas grid to Syria’s and plans to begin supplying gas for power generation in the coming weeks, according to Turkish Energy Minister Alparslan Bayraktar.
Despite record electricity demand, China sees no significant increase in LNG purchases due to high prices and available alternative supplies.
US natural gas production and consumption are expected to reach record highs in 2025, before slightly declining the following year, according to the latest forecasts from the US Energy Information Administration.