The European Commission today proposed a new emergency regulation to tackle high gas prices in the EU and secure energy supplies.
The Commission proposes the common gas market, a price cap mechanism on the TTF gas exchange, a solidarity mechanism between Member States and continuous efforts to reduce gas demand.
COMMON NATURAL GAS MARKET FROM THE EU
The Commission proposes common natural gas markets to negotiate better prices and avoid competition between member states.
The Commission will commission a service provider to organize EU-wide demand aggregation, pooling gas import needs and looking for offers on the market to match the demand. It proposes the mandatory participation of the member states in joint procurement, to collect at least 15% of the storage filling. Companies will be able to form a European gas purchasing consortium, under EU competition rules. Joint purchases will help smaller member states and in particular companies, which are in a less favorable position as buyers, to access in natural gas volumes with better conditions.
The Regulation also includes provisions to enhance the transparency of the intended and final gas supply markets in order to assess whether the objectives of security of supply and energy solidarity are being met. The Commission should be informed before the conclusion of any natural gas market or memorandum of understanding with a volume of more than 5 TWh (just over 500 million cubic meters) and may issue a recommendation in the event of a potentially negative impact on the functioning of the common market, the security of supply or energy solidarity.
ADDRESSING HIGH NATURAL GAS PRICES
The Commission proposes to establish a new pricing index for Liquefied Natural Gas (LNG) by March 2023 and in the interim proposes to establish a price correction mechanism to establish a dynamic price ceiling for trading on the TTF natural gas exchange.
“The European natural gas exchange, the TTF, no longer accurately reflects the price of LNG transactions in the EU,” the Commission stresses. Therefore, the Commission proposes to develop a new complementary price reference point with ACER (European Agency for the cooperation of energy regulators) to address this ‘systemic challenge’. The new benchmark will provide stable and predictable pricing for LNG transactions. The Commission will commission ACER to create an objective daily price assessment tool and, in then a reference point that could be used by energy market operators to adjust the price in their natural gas contracts.
Until the above is done, the Commission proposes the establishment of a temporary mechanism for limiting prices, through the European Gas Exchange (TTF), which will be activated when necessary. The price correction mechanism will establish, on a temporary basis, a dynamic price limit for transactions on the TTF. Trades at a price higher than the dynamic limit will not be allowed to take place on TTF. This will help to avoid extreme volatility and excessive prices. In addition, to limit excessive price volatility and prevent extreme price increases in energy derivatives markets, the Commission proposes to introduce a new temporary intraday price spike to be generated by EU derivatives exchanges. This mechanism would protect energy operators from large intraday price fluctuations.
SOLIDARITY AND DEMAND REDUCTION
The Commission proposes a solidarity mechanism between Member States in the event of supply shortages.
The Commission is closely monitoring measures to reduce natural gas demand. In August and September, gas consumption in the EU was around 15% lower than the average of the previous 5 years. Similar efforts will be required every month until March, according to the Council regulation. Member States will report every two months on their progress. The Commission stresses that it is “ready to activate the EU alert” or to review the reduction target if current measures prove insufficient. To strengthen preparedness for potential emergencies, the Commission is proposing measures allowing Member States to further reduce non-essential consumption to ensure gas is supplied to essential services and industries. “This should in no way affect the consumption of households that are vulnerable customers,” the Commission stresses.
Since not all Member States have concluded the necessary bilateral solidarity agreements, the Commission is proposing rules to ensure that each Member State facing an emergency receives gas from others, in return for a “fair compensation”. The solidarity obligation will be extended to non-connected Member States with LNG installations, provided that the gas can be transported to the Member State where needed. To optimize the use of LNG and pipeline infrastructure, the Commission proposes new tools to provide information on available capacity and new mechanisms to ensure that capacity is not tied up and not used by market players. It is also proposed to protect critical infrastructure in light of the suspected sabotage of the Nord Stream 1 & 2 gas pipelines.
Also, the Commission proposes to use 10% of the Cohesion Fund for the period 2014-2020, worth approximately 40 billion euros, to deal with the energy crisis.
The Commission intends to put forward proposals to strengthen the EU’s financial firepower for REPowerEU, to speed up the transition to clean energy and avoid fragmentation in the single market.
According to the Commission, its new proposals, combined with already agreed measures to reduce natural gas and electricity demand, store natural gas and redistribute excess energy sector profits, will improve stability in European natural markets. gas this winter and beyond. The Commission also stresses that the measures it is proposing today “will help to further alleviate the price pressure felt by European citizens and industry, while ensuring security of supply and a functioning internal market”. The Commission will continue its work in other areas, including the review of the Interim Crisis Framework for state aid, as well as ways to limit the impact of high gas prices on electricity prices.
RES-EMP
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