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Summaries of EU Legislation

Market correction mechanism to protect EU citizens and the economy against excessively high gas prices

SUMMARY OF:

Regulation (EU) 2022/2578 on a market correction mechanism to protect EU citizens and the economy against excessively high prices

WHAT IS THE AIM OF THE REGULATION?

  • It establishes a system of temporary measures to prevent spikes of excessively high gas prices in the European Union (EU) when these do not reflect those on the world market.
  • It is activated when prices at EU virtual trading points (VTPs)1 move above certain levels and those prices are significantly above a reference price reflecting global liquefied natural gas (LNG) price trends.

KEY POINTS

The Agency for the Cooperation of Energy Regulators (ACER):

  • monitors constantly the reference2 and front-month title transfer facility (TTF) derivative3 settlement prices;
  • receives daily LNG price assessments from Platts Benchmark BV and Argus Benchmark Administration BV (both in the Netherlands);
  • calculates the daily reference price on the basis of the information it has received;
  • activates, from , the market correction mechanism (MCM) bidding limit when the front-month TTF derivative settlement price:
    • exceeds €180 per megawatt hour (€180/MWh) for 3 working days,
    • is €35 above the MCM reference price;
  • publishes a notice on its website when a market correction has occurred.

Market operators and participants must:

  • monitor ACER’s website daily;
  • not accept or submit, once the MCM is activated, orders for TTF derivatives (front-month to front-year) €35 above the reference price – if the reference price is below €145/MWh, the bidding limit is set at €180/MWh.

The bidding limit applies until:

  • ACER publishes a deactivation notice 20 working days from the date of the market correction, if the reference price is below €145/MWh for 3 consecutive working days;
  • the European Commission suspends the MCM because of a significant deterioration in the EU’s gas supply.

Rules on suspending the MCM:

ESMA and ACER:

  • assess the impact of the MCM to determine whether its key elements are appropriate, or need to be reviewed, in the light of financial, energy and supply developments;
  • analyse whether the exclusion of over-the-counter (OTC) trading from the MCM leads to significant shifts of TTF derivatives trading to OTC markets;
  • submit the reports to the Commission by after presenting a preliminary assessment by .

The Commission:

  • decides by , on the basis of the preliminary assessment, whether to extend the MCM to derivatives linked to other VTPs;
  • may, after consulting the European Central Bank, ESMA, ACER, the European Network of Transmission System Operators for Gas, the Gas Coordination Group and other relevant stakeholders:
    • propose an amendment to the regulation to include derivatives traded OTC,
    • review elements used for the reference price, including conditions for activating the MCM and the dynamic bidding limit.

At the end of March 2023, the Commission adopted an implementing act (Implementing Regulation (EU) 2023/736 on the definition of the technical details of the application of the MCM to derivatives linked to VTPs in the EU other than the TTF).

FROM WHEN DOES THE REGULATION APPLY?

The regulation has applied since , and will apply until . However, the MCM can only be applied from , in the event of a market correction event and when a market correction notice is published.

BACKGROUND

  • Russia’s invasion of Ukraine in February 2022 led to a sharp decline in its exports of natural gas, threatening the security of supplies to the EU and leading to skyrocketing energy prices.
  • The MCM introduces a dynamic safety ceiling and sends a clear signal to markets that the EU will not accept excessively, and artificially, high gas prices. It provides certainty for market players and savings for companies and households.
  • The emergency measure is based on Article 122 of the Treaty on the Functioning of the European Union. This can be triggered when severe difficulties arise for certain products, especially energy.
  • The MCM regulation is part of a package of measures also including a joint purchasing mechanism that was established by Regulation (EU) 2022/2576 (see summary).

KEY TERMS

  1. Virtual trading points (VTPs). A non-physical commercial point where gas is exchanged between a seller and a buyer without the need to book transmission or distribution capacity.
  2. Reference price. Daily average price of several LNG price assessments reflecting world market prices for LNG.
  3. Front-month TTF derivative. A derivative the expiry date of which is nearest among derivatives with a 1-month maturity.

MAIN DOCUMENT

Council Regulation (EU) 2022/2578 of establishing a market correction mechanism to protect Union citizens and the economy against excessively high prices (OJ L 335, , pp. 45–60).

Successive amendments to Council Regulation (EU) 2022/2578 have been incorporated into the original text. This consolidated version is of documentary value only.

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