The ceiling must be woven of the TTF virtual business node in the Netherlands, where the most gas is traded throughout the European Union. TTF therefore serves as a price indicator for this commodity.
The mechanism presented by the European Commission on Tuesday should prevent price fluctuations. The ceiling only affects futures contracts for the following month. It is automatically activated when prices in the TTF reach at least 58 euros (about 1,400 kroner) per megawatt hour (MWh), not the average price of liquefied natural gas (LNG) in the world.
On Thursday, EU energy ministers will discuss the proposal at an extraordinary meeting convened by the Czech presidency.
The European bloc will continue to deal with the effects of high energy prices associated with the invasion of Ukraine and the limited supply of Russian gas, leading it to invest heavily in supporting households and businesses. After a number of other measures, the commission proposed the parameters of the price cap, which should only be used in exceptional cases.
It is not a regulated intervention that would keep prices on the gas market artificially low. It is a last resort to prevent prices from falling sharply to world levels in necessary cases, said European Commissioner for Energy Kadri Simsonov. The example is according to n prices from last August, when the TTF paid 300 euros per megawatt hour for the duration of the contract. After the holidays, prices started to fall and are currently below 120 euros per MWh.
Traders and regulators have warned in recent weeks against artificially limiting prices, which they believe could jeopardize the competitiveness of the European market and thus the supply of raw materials. This is something that even some Polish countries, such as Germany and the Netherlands, are concerned about long term against the established ceiling. However, most EU countries, including France, Italy and Poland, are calling for some form of price regulation, which they say should have been proposed by the commission.