The EU gas price limit enter into force
The complex and controversial mechanism of impose price limit on wholesale prices for imported natural gas in the European Union begins on Wednesday, in the event of a sharp rise in gas prices in the future.
Last December, EU energy ministers approved the new mechanism after months of discussions on how to deal with high gas prices since the collapse of gas imports from Russia following its invasion of Ukraine in late February.
After the record price of gas in Europe rose to around 350 Euros ($376) per megawatt-hour last August, it has now fallen to between 50 and 60 Euros, roughly the same price levels as before the Russian invasion of Ukraine.
The price limit mechanism is to be triggered automatically if, for three consecutive trading sessions, the price of a standard Dutch gas futures contract exceeds 180 Euros per megawatt-hour for delivery the following month, while the price of this benchmark contract is at least 35 Euros more than the price per megawatt-hour, LNG in the global market.
At the same time, the new price limit sets at 35 Euros over the global price of LNG, which means gas could be traded at more than 180 Euros per MWh if global LNG prices rise.
It’s not yet clear whether the price limit will be activated within a period of one year, depending on how easy and costly the European Union countries can incur to refill natural gas reserves before next winter.
Germany is among the European countries skeptical about the effectiveness of the gas pricing mechanism, citing concerns about securing supplies, while other countries say it is a comprehensive solution at the level of the European Union.