BRUSSELS, Nov 29 views on the proposal of the European Commission on a mechanism to limit the surge in gas prices, said European Commissioner for Energy Kadri Simson in the relevant committee of the European Parliament.
«Our member countries still disagree on this proposal. Most countries support the logic of this mechanism, but they have questions about the level (conditions — ed.) of the launch, the duration of the tool, the financial products that will fall under its action , while others have serious concerns about risks to financial stability and supply security,» she said.
According to Simson, the European Commission is discussing this mechanism with countries.
On November 22, the EC presented a draft interim gas market adjustment mechanism as another measure to combat the energy crisis. The EC hopes that the mechanism will help reduce volatility in the gas market and protect EU residents and businesses from sharp jumps in gas prices. This proposal was discussed by the energy ministers of the EU countries at an extraordinary meeting on November 24, and so far it has not been agreed upon by them.
As conceived by the European Commission, the mechanism will be launched if two conditions are met simultaneously: 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 at euro parity and USD), 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 price limit was announced, 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 reduction in the transparency of transactions, but also create serious risks for financial stability, the association explained. a certain number of days to start the mechanism, reduce the risks of its application to a minimum.