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EU Launches LNG Reference Price For Its Gas Market Correction Mechanism

The European Union Agency for the Cooperation of Energy Regulators (ACER) launched on Wednesday the first global assessment of the price of LNG to prepare for the start of the EU gas market correction mechanism that will include a price cap in case prices exceed certain levels.

ACER published on February 1 its first daily reference price related to the gas market correction mechanism (MCM), the regulator said, ahead of the start of the MCM on February 15.  

The MCM reference price is the average price of several LNG marker prices as assessed by different entities and the front-month National Balancing Point (NBP) derivative settlement price.

The global LNG reference price will be used to assess whether a price cap on gas should be imposed.  

After months of negotiations, the EU finally agreed in December to set a price cap on natural gas to protect consumers from excessive price spikes and limit inflationary pressure and industrial damage to European economies.

EU energy ministers reached a political agreement on a regulation that sets a so-called “market correction mechanism,” which would come into force on February 15. 

The mechanism will be triggered if the month-ahead price on the Title Transfer Facility (TTF), Europe’s key benchmark, exceeds $196 (180 euros) per MWh for three working days, and the month-ahead TTF price is $38 (35 euros) higher than a reference price for LNG on global markets for the same three working days.

As of Wednesday’s close, TTF was at $65.20 (59.30 euros) per MWh, well below any levels that would trigger a price cap.

However, if risks to the security of supply occur, the European Commission will suspend the price cap rule.   

“The Commission stands ready to suspend ex-ante the activation of the mechanism if an analysis from ECB, ESMA, and ACER shows that the risks outweigh the benefits,” EU Energy Commissioner Kadri Simson said in December.

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By Tsvetana Paraskova for Oilprice.com

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  • Klaus Mylotta on February 03 2023 said:
    TTF....I think you normally refer to the pricing unit as $ or Euros per MWh....

    I believe the units should be per MMBtu's...(millions of BTu's)

    If I am correct it is a big difference....

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