180 euros per MWh! The EU agreed on a cap on gas prices

EU energy ministers met on the 19th and agreed to set a ceiling on natural gas prices to protect the European economy from excessive natural gas prices
.

The European Council issued an announcement on the same day that EU member states agreed to establish a temporary "market correction mechanism"
.
A "market correction mechanism"
is triggered if the price of Dutch Ownership Transfer (TTF) gas futures, which is the benchmark price for gas in Europe, exceeds €180 per MWh for three consecutive business days, and the TTF price is more than €35 higher than the global LNG price within those three working days.

Last month, the European Commission proposed to set the trigger cap at 275 euros per megawatt-hour, but energy ministers did not agree
on this.

According to the latest announcement, once the "market correction mechanism" is triggered, the EU will add 35 euros as a maximum limit price to the global LNG market reference price based on major exchange-traded prices, prohibiting EU natural gas trading beyond the limit level
.
Once the limit price is activated, it needs to be implemented for 20 consecutive working days; If the maximum limit price falls below 180 euros per MWh for three consecutive working days, the limit mechanism is automatically lifted
.
If the European Commission declares a state of emergency when gas supplies are insufficient, the price limit mechanism will also be automatically lifted
.

The EU has also added a halt mechanism
.
If there is a gap between supply and demand or financial risks, such as a 15% increase in natural gas demand in one month, a sharp decline in LNG imports, or a sharp decline in TTF natural gas trading volume year-on-year, the implementation of price
limits can be suspended.

Once approved by EU member states, this temporary Market Correction Mechanism will enter into force on February 15, 2023, and will be valid for one year
.
The European Securities and Markets Authority and the European Energy Management Cooperation Agency are responsible for monitoring and evaluating the operation
of the mechanism.

For the EU's approach to limiting natural gas prices, Russian Presidential Press Secretary Dmitry Peskov said on the 19th that EU price limits are a challenge to the
market price generation mechanism and are unacceptable.

Within the European Union, countries have also been squabbling over gas price limits
.
Some countries hope to hit Russia with this move; The Netherlands and Austria fear that price limits will disrupt European energy markets and threaten the security of energy supplies; Germany fears that this will shift energy suppliers to Asian markets and further disqualify
Europe.

Analysts believe that the EU's agreement on a price limit of 180 euros per megawatt hour is first of all due to the adoption of the "simple majority" voting principle, that is, the proposal is supported by more than 55% of member states and more than 65% of the total population of the EU.

Many people in the industry have reservations about the prospects for the implementation of this price limit mechanism
.
Intercontinental Exchange Group, which has threatened to move out of the EU, said on the 19th that it will strictly assess
whether the EU can manage the TTF trading market in a fair and orderly manner.

The European Energy Exchange Association has previously said that capping prices on gas could lead to an increase in over-the-counter trading, which is not covered by the price cap, is difficult to track and could pose a significant risk
to supply and financial stability in European energy markets.

Jacob Mandel, an analyst at the British "Aurora" energy research company, believes that the shift of natural gas futures trading to over-the-counter may make consumers as vulnerable to higher prices as before
.