The “market correction mechanism” for energy is composed in Brussels by the energy ministers

By Chrysostomos Tsoufis

The energy ministers are asked to “exorcise” the devil from the details of the Eurozone member states meeting today in Brussels. They have to convert them guidelines given by European leaders to coherent measures that will be workable and agreed upon by all. Their mission is not at all easy as they are essentially moving blindly since most of the measures have not been implemented before or are being implemented on a national and therefore much smaller scale.

First and foremost they need to shape the cutter in the sharp fluctuation of natural gas pricesthe market correction mechanism as the Commission christened him. They need to build a mechanism that will not increase gas demand, affect security of supply and prevent over-the-counter trading. The mechanism will be temporary and is intended to act as a bridge until it becomes operational the new European LNG benchmark which will complement the TTF which represents natural gas transported through pipelines.

Energy ministers should agree on the process of joint supply of natural gas. Eurozone natural gas companies, according to the Commission’s proposal, will be able to organize themselves into a consortium and jointly purchase quantities that cannot be less than 15% of the EU’s storage needs.

In addition, a series of measures must be processed which provide for energy solidarity.

There will be rules governing solidarity ties even between states that have not signed bilateral agreements to allow one state to supply natural gas to another.

Member countries facing supply problems will be able to source gas not only from their neighboring countries – with which they are interconnected – but also from countries that have LNG terminals.

The European Council will still be able to decide in cases of a supply crisis to allocate the necessary quantities of natural gas to member states by compensating the member state that produces it.

Measures to reduce consumption are also on the table which even affect protected consumers as member states will be able to request a reduction for uses that are not considered necessary such as The heating of outdoor spaces. Of course this will happen for a limited time and under exceptional circumstances.

This mobilization of Europe has contributed to the rapid de-escalation of natural gas prices, which yesterday fell below €94/Mwh. It is typical that since the informal summit in Prague, in less than 20 days that is, natural gas has fallen by 46% from the 175€/Mwh it was at that time.

Of course, this is not the only reason. The summer is helping to reduce demand while Europe’s warehouses have exceeded 93% of their capacity. It is typical that in the European seas ships carrying LNG are queuing up to unload in Spanish, Dutch and French ports. This fact reduces the demand for gas from pipelines and that is also reflected in TTF prices.

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