The European Commission has developed a mechanism that will reduce gas prices in the local market and prevent excessive speculation in the gas market. This is reported by Bloomberg agency, having familiarized itself with the draft document, which will be presented in the coming days.
The agency recalls that globally, in the context of the energy crisis, the EU planned to develop a new benchmark for exchange trading in gas, designed to minimize the consequences of a reduction in Russian gas supplies. The European Commission intends to present this indicator by the end of the year, and now it is proposed to establish a “dynamic price ceiling”, which will not allow the exchange price for gas to rise above the established level.
“This will help avoid extreme volatility and price spikes, as well as speculation that could lead to difficulties in the supply of natural gas to some member states,” the draft document says.
The agency notes that the EU representatives refused to comment on the document before its official presentation, so its final content may still change. The EU authorities are expected to adopt the document on Tuesday, October 18, and the European authorities plan to discuss the next package of measures to counter the energy crisis during the summit of EU leaders on October 20-21 in Brussels.
A number of countries, including Italy, Greece, Poland and Belgium, proposed setting a ceiling for price growth during one trading session at 5%, however, since the system is “dynamic”, this ceiling can be regularly reviewed. The publication claims that the European Commission intends to create a new market indicator for liquefied natural gas (LNG), which should be an addition to the current TTF benchmark (transfer of ownership mechanism) on the Dutch hub. Thus, two gas benchmarks will appear on the European market, which is likely to have a positive effect on prices. The second mechanism is planned to be presented at the end of 2022.
The proposals of the European Commission may not be limited to the creation of a new trading mechanism, as well as limiting price fluctuations in exchange prices for gas. Some EU countries insist that additional measures need to be taken in the adjacent power generation market. Countries cite the example of Spain and Portugal, which set marginal prices for the fuel used to generate electricity, which reduced the final price for the consumer.
However, the EU believes that the introduction of such a system throughout the bloc is too risky, so the European Commission proposes other measures. The EU executive body is promoting a single platform for gas purchases, which will normalize supply and demand in times of crisis, as well as financial incentives for those who buy fuel. In particular, the EC intends to simplify the collateral system for companies, which will significantly increase their financial capabilities. The proposed measures are being created with a focus no longer on the current heating season, but on 2023.
The head of the European Commission, Ursula von der Leyen, has repeatedly stated that the situation in the European energy sector is difficult, but manageable. The creation of a new trading benchmark, in her opinion, should ease the pressure on the markets and reduce the hype among speculators. In her opinion, the current exchange trading does not reflect market reality due to the actions of Russia, which deliberately reduced gas supplies to Europe against the backdrop of the war in Ukraine.