By Alexander Miller, consultant in energy markets. Eurasia Business news, November 23, 2022

The EU Commission proposed to introduce a “safety price ceiling” for Russian gas at $ 3,000 per 1,000 cubic meters.

The European Commission officially proposed yesterday setting a safety price ceiling on Russian gas at $3,000 per thousand cubic meters. The press release was published on the website of the commission.

The proposed instrument consists of a safety price ceiling of € 275 on the month-ahead TTF derivatives or $ 3,000 per thousand cubic meters at the current exchange rate under the contract for a month ahead. The Title Transfer Facility (TTF), which is the EU’s most commonly used gas price benchmark, plays a key role in the European wholesale gas market. 

This measure will be valid at the TTF gas hub in the Netherlands. The price level in the market is proposed to be adjusted automatically to avoid imbalance.

The European Commission will be ready to intervene if the price of gas exceeds the established mark within two weeks, or if the spread between the price of TTF and the global price of liquefied natural gas is 58 euros or more within 10 trading days. The mechanism can be activated from January 1, 2023.

On August 25 the spot price of gas in Europe had crossed $ 3,300 per 1 thousand cubic meters.

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In early November, it was reported that the European Commission questioned the effectiveness of the gas price ceiling to protect against the energy crisis and proposed a new plan to stabilize the markets.

On 18 October, the Commission proposed additional measures to address high gas prices specifically and strengthen security of gas supply via joint purchasing, default solidarity to apply in case of emergency, a new pricing reference benchmark for LNG and a temporary collar to prevent extreme spikes in derivatives markets. It also proposed the legal basis for a market correction mechanism to address exceptionally high gas prices in the short term.

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