EU approves market correction mechanism to limit episodes of excessive gas prices

The EU energy ministers have reached a political agreement on a Council regulation that sets a market correction mechanism to protect citizens and the economy against excessively high prices, reported from the European Council website. 

The regulation aims to limit episodes of excessive gas prices in the EU that do not reflect world market prices, while ensuring security of energy supply and the stability of financial markets.

The market correction mechanism will be automatically activated if the month-ahead price on the Title Transfer Facility (TTF) exceeds 180€/MWh for three working days; if the month-ahead TTF price is 35€ higher than a reference price for LNG on global markets for the same three working days.

The mechanism will apply as of February 15, 2023. The Agency for the Cooperation of Energy Regulators (ACER) will constantly monitor the markets and if it observes that a market correction event has occurred.

While the mechanism is active, transactions concerning the natural gas futures that are within the scope of the MCM above a so-called 'dynamic bidding limit' will not be allowed to take place. 

The ‘dynamic bidding limit’ is the reference price for LNG on global markets (based on an international basket of LNG transaction hubs) plus 35€/MWh. If the reference price for LNG is below 145€, the dynamic bidding limit will remain at the sum of 145€ and 35€.

Once activated, the dynamic bidding limit will apply for at least 20 working days. If the dynamic bidding limit is below 180€/MWh for last three consecutive working days, it will be automatically deactivated.

The dynamic bidding limit will also be automatically deactivated, at any time, if a regional or a Union emergency is declared by the European Commission according to the security of supply regulation, notably in a situation where the gas supply is insufficient to meet the gas demand (‘rationing’).





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