The two conditions for the activation of the Mechanism – When and under what conditions, the activation of the ceiling will be maintained for at least 20 days
By Chrysostomos Tsoufis
The energy ministers of the Eurozone have arrived at a ceiling full of asterisks and safeguards, to the extent that they may never let it be implemented, after painstaking consultations.
The good thing is, of course, that there is an agreement and in fact almost with the maximum possible unanimity. Even the Germans voted positively. Only the Hungarians voted no while the Dutch and Austrians abstained.
The ceiling was finally set at €180/Mwh and can be considered a victory of the bloc of 15 in principle, in which Greece and Kostas Skrekas had a leading position, which from the beginning sought a price much lower than the initial proposal of €275 of the Commission. The ceiling will be activated every time the following two conditions occur AT THE SAME TIME:
– The natural gas price of the TTF index to exceed €180/Mwh for 3 days
-The difference with global LNG prices exceeded €35 also for 3 days.
In other words, we are talking about a dynamic ceiling which can exceed €180 if the price of LNG continues to move upwards above €145. What the ministers wanted to achieve according to the Czech presidency is that the price of natural gas never goes above that of LNG +€35 (which is the cap in order to keep the European market attractive and competitive and at the same time not to be put in financial stability at risk.
When the cap is activated, it will be valid for at least 20 business days unless – and here the asterisks begin – at least one of the following conditions is met (which worked to placate the…reactionaries):
– Immediately as soon as the price of LNG+€35 drops below €180
– The Commission declares a state of emergency
-If an increase in natural gas consumption is observed
-If a decrease in TTF transactions is observed
-If a decrease in LNG supplies is observed
But the asterisks don’t stop here unfortunately. Until February 15, the Commission has ordered 3 reports from the ECB, ESMA (European Securities and Markets Authority) and ACER (Organization for the Cooperation of Energy Regulatory Authorities). If these reports show that the implementation of the market correction mechanism as it is called, will cause more problems than it will solve, the Commission reserves the right ex ante never to activate it and lock the plan in a drawer.
The ceiling will include all trading hubs, although the Commission reserves the right to remove some as it sees fit. The ceiling does not concern Over the counter transactions, i.e. contracts signed over the counter.
The agreement on the ceiling means that the issues of common natural gas supplies, the supplementary price index for LNG, energy solidarity measures and the acceleration of renewable energy lending are proceeding normally.
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