Regulation 2022/2578 - Market correction mechanism to protect Union citizens and the economy against excessively high prices - Main contents

EN

Official Journal of the European Union

L 335/45

The Russian Federation’s (‘Russia’) unprovoked and unjustified war of aggression against Ukraine and the unprecedented reduction of natural gas supplies from Russia to Member States threaten the security of supply in the Union and Member States. At the same time, Russia’s weaponisation of gas supply and market manipulation through intentional disruptions of gas flows have led to skyrocketing energy prices in the Union. Changing supply routes, resulting in congestion in the European gas infrastructure, the need to find alternative gas supply sources and price formation systems which are not adapted to the situation of a supply shock have contributed to price volatility and price hikes. Higher natural gas prices endanger the economy of the Union through sustained high inflation caused by higher electricity prices, undermining consumer purchasing power, as well as through raising the cost of manufacturing, particularly in energy-intensive industry, and seriously threaten the security of supply.

In 2022, natural gas prices were exceptionally volatile, with some benchmarks reaching all-time highs in August 2022. The abnormal level of the natural gas prices registered in August 2022 was the result of multiple factors, including a tight supply-demand balance linked to storage refilling and the reduction of pipeline flows, fears of further supply disruptions and market manipulations by Russia, and a price formation mechanism which was not tailored to such extreme demand and supply shifts and which aggravated the excessive price hike. While prices over the previous decade were within a band between EUR 5/MWh and EUR 35/MWh, European natural gas prices reached levels which were 1 000 % higher than the average prices seen before in the Union. Dutch Title Transfer Facility (TTF) Gas Futures (3-month/quarterly products) that are traded on the ICE Endex (2) exchange have been traded at levels slightly below EUR 350/MWh and the TTF day-ahead gas that is traded on European Energy Exchange hit EUR 316/MWh. Gas prices have never before reached levels such as those observed in August 2022.

Following the damage to the Nord Stream 1 pipeline which was likely caused by an act of sabotage in September 2022, there is no likelihood that gas supplies from Russia to the Union will resume at pre-war levels in the near future. European consumers and businesses remain exposed to a manifest risk of further potential episodes of economically damaging gas price spikes. Unpredictable events, such as accidents or the sabotage of pipelines, that disrupt gas supplies to Europe or that dramatically increase demand may threaten the security of supply. Market tensions triggered by the fear of sudden scarcity, are likely to persist beyond this winter and into next year, as the adaptation to supply shocks and the establishment of new supply relationships and infrastructure is expected to continue for one or more years.

While derivatives relating to other virtual trading point (‘VTPs’) exist, the TTF in the Netherlands is commonly seen as the ‘standard’ pricing proxy on European gas markets. This is because of its typically high liquidity, which is due to several factors, including its geographical location, which allowed the TTF in a pre-war environment to receive natural gas from several sources, including...