Europe wants at all costs to avoid a repeat of last summer’s episode, when the price of natural gas soared above 350 euros per megawatt hour (MWh), breaking any cabal pattern. With that objective between their eyebrows, and after several weeks marked by the divergence of positions between the capitals —with much more ambition in the south and the periphery than in the center and the north—, the Twenty-seven agreed on Monday a ceiling on the gas price in the main European wholesale market (the Dutch TTF) which promises to put an end to speculation and reduce future pressure on households and companies.
How will it work?
The cap will jump when the price of natural gas in the TTF market exceeds, for three consecutive days, 180 euros per MWh and exceeds the reference value of this fuel in the rest of the world’s major markets by 35 euros or more. From that moment on, the maximum value to be paid will be the price of that global basket plus 35 euros. With this premium, it is a question of preventing suppliers from preferring to sell in other latitudes instead of to European countries, one of the great fears of Germany and the Netherlands.
In the opposite direction, the cap will be deactivated when —also for three consecutive days— gas falls below 145 euros per MWh: the 180 euro cap, minus the 35 differential. There will also be other factors that could lead to its deactivation: the declaration of a gas emergency on a European or regional scale, that the guarantees to gas companies skyrocket and cause instability in the financial markets or that the demand for gas registers an increase. abrupt, among others.
Why on the Dutch market?
Because it is, by far, the most important on the continent and, in one way or another, to which all the others are referenced. So, by putting a ceiling on this reference, the price in the rest of the European gas markets —among them, the Spanish Mibgas— is also indirectly limited. In any case, if that does not happen, the European Commission has a card up its sleeve: the possibility that the scope of the mechanism is also extended to all the others.
When will it be active?
Starting next February 15. Today, however, the market is far from the trigger value: this Monday it closed at 107 euros, almost 70% below. What happened this year —in which the price of gas has increased fivefold— is, on the other hand, a sign of the enormous volatility and that an escalation of this caliber is by no means ruled out if the demand for gas in Asia — long, the main player in the market- is re-emerging.
What implications will it have?
Many. First of all, it should cut potential price spikes for families and companies in their tracks. And, therefore, it should also attenuate the energetic part of inflation.
On paper, it will also have an impact on the price of electricity. The reason? Except in Spain and Portugal —where the so-called Iberian mechanism has separated the paths of gas and electricity since June 15—, in the rest of the countries this fuel continues to mark a price in the hours in which renewables and nuclear do not They are able to cover the bulk of the demand. And if gas has a ceiling, in a way, electricity will have a ceiling as well when gas spikes. “At peak times in the gas market, contagion to electricity will be stopped,” notes Alejandro Labanda, director of the Ecological Transition at the BeBartlet consultancy. The best example, he says, is what happened last summer, when the maximum in gas was immediately transferred to the European electricity markets.
Is there a risk of shortages?
It was one of the main fears of Germany, but it is difficult to happen. With the aforementioned premium of 35 euros per MWh, gas suppliers will continue to have an incentive to sell to Europe instead of the rest of the world. If this were not the case – something unlikely – the agreement reached this Monday contemplates the deactivation of the cap if there is an abrupt drop in the arrivals of liquefied natural gas (LNG, in the jargon of the sector, the one that arrives by ship), which puts in risk security of supply. The European regulator, ACER, will be essential in the process: it will be in charge of “constantly monitoring” the gas market and, if any risk is detected, deactivating it.
“In the face of any risk to security of supply, the ceiling will jump,” summarizes Labanda. The countries of the south and the periphery have gained in the reference value (180 euros is light years from the 275 euros initially proposed by Brussels), but Germany guarantees that, if there is the slightest doubt, concern for supply will prevail about the price.
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