European Union authorizes cap on gas costs

Polish prime minister: Russia-Germany gas agreement was 'disastrous'

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Lisi Niesner|Reuters

European Union energy ministers accepted a “dynamic” cap on gas costs Monday after 2 months of extreme settlements.

Introducing a limitation on gas costs has actually shown questionable for European authorities. While numerous EU member states have actually argued that the step is necessary to lower sky-high energy expenses for customers, others have actually fretted about the prospective market ramifications of the policy.

“We did our job, we have the deal. Another mission impossible accomplished,” Jozef Sikela, market minister of the Czech Republic, which holds the presidency of the Council of the EU, stated in an interview.

Energy ministers conquered their distinctions and accepted what they’re calling a market correction system. It will be immediately triggered under 2 conditions: If front-month gas agreements go beyond 180 euros ($191) per megawatt hour on the Dutch Title Transfer Facility– Europe’s primary criteria for gas costs– for 3 working days in a row; and the rate is 35 euros greater than a recommendation rate for liquid gas on international markets for the very same duration.

The step will use fromFeb 15. When used, it will set a “dynamic bidding limit” on gas futures deals for 20 working days.

Countries consisting of Germany had actually required specific conditions to activate a suspension of the system to prevent negative impacts. These will consist of a drop in the LNG recommendation rate plus the premium dropping listed below 180 euros per megawatt hour for a minimum of 3 working days, or if the European Commission states an emergency situation.

The Dutch TTF traded around 109 euros per megawatt hour onMonday

Kremlin spokesperson Dmitry Peskov stated the step was an attack on market rates and “unacceptable,” Reuters reported, pointing out Russia’s Interfax news firm. Russia’s intrusion of Ukraine and a subsequent rush by the EU to end its heavy dependence on Russian gas has actually added to an energy crunch that has actually sent out costs dramatically greater and caused market volatility.

Sikela worried that it is not a rigorous cap, as costs might possibly exceed the limitation if costs on the LNG market exceed a specific level. “In other words, this is not a fixed cap but a dynamic one,” Sikela included.

Kadri Simson, European commissioner for energy, stated in an interview: “It is an instrument to prevent episodes of excessive gas prices which do not reflect world market prices. We have seen this happening, for example in August this year when gas prices spiked to more than 300 euros per megawatt hour.”

“High and extreme volatile gas prices are damaging our economy. They are also damaging our households and businesses. This aims to take away the war premium, the mark-up compared to global LNG prices, that Europe pays due to the way prices form on the TTF market,” she stated.

“Today, we reached an arrangement on a proposition for a market correction system to safeguard people & & economy versus exceedingly high [energy prices],” Tinne Van der Straeten, Belgium’s energy minister, composed on Twitter.

“From the start there was a common goal: keeping prices under control & securing security of supply. Today, we achieved this goal.”

Teresa Ribera, Spain’s minister for environmental shift, tweeted: “Finally! We have just reached an agreement to establish a mechanism that facilitates a correction in natural gas prices if they soar again.”