According to the European Commission's (EC) press release, the mechanism implies a price ceiling of 275 euros ($283) for gas futures on the Title Transfer Facility (TTF), which is a virtual trading hub for natural resources used as a price benchmark in the EU. The ceiling will be activated only if two criteria are met: first, the gas price exceeds 275 euros for two weeks and, second, the spread between the TTF price and global liquefied natural gas (LNG) price is 58 euros ($60) or more for more than 10 trading days.
"Today, we propose to put a ceiling on the TTF gas price to protect our people and businesses from extreme price hikes. The mechanism is carefully designed to be effective, while not jeopardising our security of supply, the functioning of EU energy markets and financial stability," Simson said.
If both conditions are met, the Agency for the Cooperation of Energy Regulators (ACER) will inform relevant European institutions and the next day, the price ceiling will be introduced, rejecting orders for gas futures exceeding 275 euros, the EC reported. The mechanism may be launched on January 1 2023.
The proposed package also includes safeguards to protect unhindered gas supplies and market stability. Gas companies will be able to buy gas via spot instruments and over-the-counter, since the mechanism only prohibits the acquisition of TTF derivatives. Besides, the Commission has a right to suspend the mechanism at any moment.
The EU energy ministers will discuss this proposal on Thursday at the Council meeting.
The European Union is dealing with the consequences of shortages in gas supplies caused by deteriorated relations with Russia. On October 18, the Commission presented extra measures to combat high gas prices, including joint purchasing, a solidarity mechanism, an LNG price benchmark, increased energy saving efforts and temporary futures price restrictions. On October 21, the Council urged the EC to "submit concrete decisions on additional measures".