Environmental activists argue that the risk of sabotage or accident makes fossil infrastructure a “ticking time bomb”.
Lisi Niesner | Reuters
European Union energy ministers agreed to a “dynamic” cut in natural gas prices on Monday after two months of intense negotiations.
The introduction of a gas price cap has sparked controversy amongst European officials. While many EU Member States have argued that the measure is obligatory to cut back sky-high energy costs for consumers, others are concerned about the potential market effects of the policy.
“We have done our job, now we have a deal. One other unattainable mission completed,” said Jozef Sikela, Minister of Industry of the Czech Republic, holding the presidency of the EU Council, at a press conference.
Energy ministers overcame their differences and agreed to what they call the market correction mechanism. It’s going to be mechanically activated under two conditions: if gas contracts in the first month exceed 180 euros ($191) per megawatt hour under the Dutch property transfer regime – the most important European benchmark for natural gas prices – for 3 working days in a row; and the price is EUR 35 above the liquefied natural gas reference price on world markets during the same period.
The measure will apply from February 15. Once applied, it would set a “dynamic bidding limit” for natural gas futures to twenty business days.
Countries, including Germany, have called for certain conditions to cause the mechanism to be suspended to avoid negative effects. They’ll include a drop in the LNG reference price plus a drop in the premium below €180 per megawatt hour for not less than three working days or in the event of a state of emergency declared by the European Commission.
The Dutch TTF cost around 109 euros per megawatt hour on Monday.
Kremlin spokesman Dmitry Peskov said the measure was an attack on market prices and “unacceptable,” Reuters reported, citing the Russian news agency Interfax. The Russian invasion of Ukraine and the EU’s subsequent rush to finish its dependence for Russian gas contributed to the energy crisis, which caused a pointy increase in prices and market instability.
Sikela stressed that this just isn’t a strict limit, as prices could potentially rise above the limit if LNG market prices exceed a certain level. “In other words, it isn’t a set limit, but a dynamic one,” added Sikela.
Kadri Simson, European Commissioner for Energy, said at a press conference: “It’s an instrument to forestall episodes of excessive gas prices that don’t reflect world market prices. to greater than €300 per megawatt hour.
“High and very volatile gas prices are hurting our economy. Additionally they harm our households and businesses. That is to remove the war premium, the margin in comparison with global LNG prices that Europe pays on account of price formation on the TTF market,” she said.
“Today we reached an agreement on the proposal for a market correction mechanism to guard residents and the economy from excessively high prices [energy prices]Belgian Energy Minister Tinne Van der Straeten tweeted.
“From the starting, we had a typical goal: to maintain prices under control and to make sure security of supply. Today now we have achieved this goal.”
Teresa Ribera, Spain’s Minister for Ecological Transition, tweeted: “Finally! We’ve got just reached an agreement to determine a mechanism that can facilitate the correction of natural gas prices in the event that they increase again.”