The ‘6-point plan’ to save Europe’s gas market – POLITICO

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Kyriakos Mitsotakis is the prime minister of Greece.

ATHENS – The outbreak of war in Ukraine has displaced more than 2 million people, destroyed countless lives and livelihoods and caused death, misery and human suffering on an impossible scale. can imagine.

To date, the focus of the international community has been on defending Ukraine’s sovereignty and democracy, while providing military and humanitarian assistance to the struggle and helping refugees. These are issues that we will not address. Just as we will continue to tighten the economic grip on the Russian regime by imposing sanctions.

However, there is another important, more subtle but crucial aspect of this crisis that we need to pay attention to: Europe’s vulnerability when it comes to gas prices and gas-generated electricity. burn.

In normal times, supply and demand market economics determine the price of any asset. But these are no ordinary times, and natural gas has become a major factor in the power struggle between Russia and the European Union. In other words, the EU gas wholesale market has not been functioning properly for some time. And I believe this must be resolved quickly and decisively to prevent further damage to the lives of EU citizens, the economies of the member states and the success of the EU. European Green Deal.

Analysis of the EU’s Agency for the Cooperation of Energy Regulators (ACER) and the EC’s Gas Coordination Group suggest that gas prices have decoupled from the market economy and are instead driven by fear. and speculation. Messages regarding natural gas supply lead to over-amplified market reactions leading to price arbitrage that do not reflect the reality of gas reserves – or supply and demand within the union. .

The consequence of this is a large additional burden on residents, who pay more than they need for gas to heat their homes and for gas-generated electricity. In addition, energy prices also have a significant impact on inflation in the euro area, making people’s lives more expensive.

This politicized spiral of speculation and bullishness must stop. When markets cease to function normally, governments and regulators are obligated to step in and ensure markets can re-establish and rebalance. Now is such a moment.

That is why I have written to the President of the European Commission Ursula von der Leyen, asking the Commission to consider the “Six Point Plan” that I have drawn up for the EU to regulate the wholesale gas market. .

Extreme circumstances call for positive thinking, and it’s time to address this threat. We seek to intervene only as a last resort and with a range of temporary measures. The following is a series of technical but necessary steps to rebalancing the market.

First, we need to cap prices on what’s known as the transfer of title base (TTF), or the highest gas price in history before the crisis.. Second, we must have a daily price protection system, similar to those that exist in the stock market.

We should also consider setting an emergency price – or fixing a fixed price, in other words – but as an emergency response to claims regarding gas flows from Russia. We also need to limit profit on gross margin. For example, in the wholesale electricity market, this could be a 5% limit based on market regulators monitoring production costs and production assets.

Then there is real delivery trading or looking at a limited time option to only allow trading by physical delivery and avoid market manipulation.

And finally, it’s about enhancing liquidity: Increase liquidity in the natural gas market by combining markets between the US, EU and Asia. This could be done, for example, by increasing cooperation with China on LNG cargoes and potentially introducing a transport cost cap to minimize speculation.

I understand that these points represent significant market interventions. That’s why they have to be time-limited and come with well-defined trigger and exit options. They are designed to give the EU a short-term remedy to stabilize the gas market, prevent market speculation to the detriment of taxpayers and businesses, and de-weaponization. gas market due to geopolitical tensions and find time to be more sustainable medium to long term solutions.

Furthermore, these are measures that have been used in other markets, under extreme circumstances in the past. And more importantly, they can rationalize prices without adding additional financial costs to our economy, or impacting natural gas production capacity or supply chains.

But we must act now. This problem will not simply go away as soon as gas demand drops. As we move into the spring and summer months, electricity prices will continue to be tied to gas prices at wholesale markets, creating a huge burden on households and businesses.

The plan is designed to protect the functioning of Europe’s wholesale electricity and gas markets, and to ensure that the EU, its citizens and the economies of its member states are not unduly affected in this regard. an already challenging period. Without it, the risk to stability throughout the bloc would only increase. The '6-point plan' to save Europe's gas market - POLITICO

Fry Electronics Team

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