EU set to consider lower TTF gas price cap ahead of Dec. 13 energy council

A proposed price cap on the Dutch TTF month-ahead gas price could be lowered to Eur220/MWh ($230/MWh) from an initial European Commission proposal of Eur275/MWh, according to a leaked draft of an amended market correction mechanism regulation.

The EU's energy commissioner Kadri Simson said Nov. 28 that member states remained "polarized" over the EC's proposal for a TTF gas price ceiling, with discussions set to continue ahead of the next ministerial meeting Dec. 13.

The EC first proposed a new market correction mechanism that would trigger a cap on the TTF month-ahead price of Eur275/MWh if a number of conditions were met.

These were that the front-month TTF settlement price exceeded Eur275/MWh for two weeks and that the TTF price was Eur58/MWh higher than an LNG reference price for 10 consecutive trading days.

However, EU energy ministers failed to agree Nov. 24 on the proposals during an emergency council in Brussels, with a number of member states rejecting the Eur275/MWh cap as too high and ineffective.

Proposals for a number of changes have since been circulated among member states, including reducing the cap to Eur220/MWh and cutting the duration that the price would have to exceed that level to five trading days.

In addition, the spread between the TTF month-ahead price and the LNG reference price would be only Eur35/MWh, down from Eur58/MWh, according to the draft.

The EC could not be reached Dec. 7 for immediate comment on the amended proposal.

TTF reality

EU officials have said in recent months the TTF was no longer fit for purpose and did not reflect the new reality in Europe where LNG is a more dominant supply source.

Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price at an all-time high Eur319.98/MWh late August.

Prices have weakened since on the back of healthy storage and demand curtailments, though prices remain historically high with Platts assessing the TTF month-ahead price Dec. 6 at Eur138.90/MWh.

Simson said a majority of member states supported the logic of the market correction mechanism, but they had questions regarding the level of the cap and the duration of the instrument.

Simson said the two-week period for prices to exceed Eur275/MWh had been considered long.

She also said some member states had "strong outstanding concerns" regarding potential risks to financial stability and security of supply.

Greece, with the backing of 14 member states, argued that the proposed price level would be ineffective in practice.

"The ceiling of Eur275/MWh is not really a cap. We need a realistic mechanism that can be put into practice," Greek energy minister Kostas Skrekas said following the last council meeting Nov. 24.

"With a cap of between Eur150/MWh and Eur200/MWh, Europe can secure the gas it needs and cause significant demand reductions," Skrekas said.

Policy safeguards

In her comments Nov. 29, Simson said the EC had introduced safeguards in its price cap proposal to protect against any threat to gas supply security.

She said that if triggering the market correction mechanism created any issues with security of supply, there was the option to suspend the cap immediately.

Simson also stressed the market correction mechanism was designed to be temporary. "It is not meant to be an instrument to structurally reduce gas prices to prewar levels."

That, Simson said, could only be achieved through lowering gas demand and replacing gas with renewable energy sources.