Commission proposes special gas price cap - mandatory gas savings on the way!

Today, the European Commission formally proposed a market correction mechanism that
would legally intervene in the price of a part of the transactions on the Dutch TTF
gas exchange in the event of a two-week extreme gas price environment. Moreover,
the Commission is also preparing to impose a mandatory 15% gas saving for all
member states, the framework for which was agreed by member states in the summer.
The proposal, announced on Tuesday, could be discussed and decided by energy
ministers at an extraordinary meeting on Thursday (24 Nov).

The Commission's statement recalls that for almost two weeks in the second half of
August, the market environment was characterized by extreme gas prices due to
uncertainties about Russian supplies and storage activity (prices temporarily
jumped to around €340/MWh), which caused serious damage to the European economy. To
avoid this happening again, the Commission is now proposing to introduce a
temporary, targeted instrument to intervene automatically in the gas market in the
event of an extreme spike in gas prices.

The mechanism would be triggered automatically if the following two conditions are
met simultaneously:

the front-month TTF derivate settlement price exceeds €275 for two weeks;
TTF prices are €58 higher than the LNG reference price for 10 consecutive trading
days within the two weeks.
If these two conditions were to occur together, the Agency for the Cooperation of
Energy Regulators (ACER) will immediately publish a market correction notice in the
Official Journal of the European Union and inform the Commission, European
Securities and Markets Authority (ESMA) and the European Central Bank (ECB) from 1
January 2023 and no transactions above €275 would be possible for the next futures
contract on the TTF gas exchange from the following day. In addition, member states
would already have to report to Brussels in the short term on the steps they have
taken to reduce gas consumption at home.

There are two ways to suspend the market price correction mechanism at any time:

Automatically, with a deactivation, when its operation is no longer justified by

the situation on the natural gas market, namely when the gap between the TTF price
and the LNG price is no longer met during 10 consecutive trading days.
By a Commission suspension decision when risks to the Union's security of supply,
to demand reduction efforts, to intra-EU flows of gas, or financial stability are
identified.
Another very important element of the Commission's plan made public today is that
the Commission has already indicated that as soon as member states adopt this
regulation in the Council, the Commission will immediately propose to member states
that an EU-alert be introduced under the Save Gas for a Safe Winter regulation that
was adopted in July,

TRIGGERING MANDATORY GAS SAVINGS TO ENSURE DEMAND REDUCTION.

This suggests that the voluntary 15% gas reduction plans that came into force in
August are not delivering the necessary results in some member states, posing a
threat to the security of winter supply and should be made mandatory in all member
states. The main underlying objective here is to ensure that, in the face of
constraints on Russian and other supplies, European gas storage facilities are
depleted as little as possible in the winter season that is just starting, so that
the storage season can start from a higher level of filling from next spring. The
ultimate aim would be to ensure that next year's heating season can be managed with
as little risk as possible, even if Russian supplies were to stop completely next
year.