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European Union Decided To Cap Natural Gas Prices If It Exceeds USD 191 Per Megawatt Hour

As part of the European attempt to reduce the high cost of energy and end reliance on Russian energy, EU nations reached an agreement on a cap for natural gas prices.

The price of natural gas will be capped under the compromise agreement, which is anticipated to go into effect on February 15, if month-ahead contracts trading on the Dutch Title Transfer Facility (TTF) in Amsterdam go over 180 euros (USD 191) per megawatt hour and the price of LNG globally goes over 35 euros for more than three days. In the event that prices do not drop to 180 euros for three days, the cap would remain in place for twenty days to say the least.

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The measures allowing the EU to suspend the cap in the event of an energy emergency, a decrease in futures trading, or the triggering of substantial margin increase requirements helped dealmakers overcome the resistance of countries opposed to the intervention.. The Netherlands and Austria did not participate in the vote, and Hungary, which has maintained close ties with Russia, voted against the compromise.

According to Reuters, Germany changed its mind on the agreement after securing provisions that would speed up the permitting of renewable energy projects and allow it to be suspended.

The owner of the Dutch TTF market, Intercontinental Exchange (ICE), has previously stated that if the price cap were adopted, gas trade might be moved outside of the EU. The business was examining the specifics of the announced market correction method, its technological viability, its effect on financial stability, and whether ICE can continue to operate fair and orderly markets from the Netherlands.

Because of its dependency on Russian natural gas, Europe is at risk of supply interruptions from Russia as punishment for the economic sanctions imposed in response to its invasion of Ukraine. High electricity rates are a direct result of rising natural gas prices.

In the first half of 2022, electricity costs in the EU averaged 0.25 euros per kilowatt hour and 0.33 euros in Germany, both significantly more than the U.S. average of USD 0.16 per kilowatt hour as of November.

The agreement reached by the energy ministers of the EU member states, the European Commission, and the European Parliament would also increase the 225 billion euros in funding previously authorised for initiatives aimed at member countries' energy independence by 25.4 billion euros.

After Gazprom PJSC announced that its deliveries would continue via alternate channels in the wake of a pipeline explosion in Russia, natural gas prices in Europe declined.

The corporation confirmed earlier allegations that a link was damaged by a fire on Tuesday and stated that the fuel is being shipped to customers in its entirety. A crucial transit route that travels through Ukraine and into the European Union includes the pipeline.

The Ukrainian gas system also attested to the continuity of regular Russian shipments. Reports of the explosion originally caused benchmark futures to soar.

Europe’s Natural Gas Price Trend and Forecast

Due to the Nord Stream 2 pipeline supply interruption from Gazprom, Russia, to the European region, natural gas prices in the region are on the rise. The Dutch Title Transfer Facility (TTF), the European standard for Natural Gas trading, saw an increase in the front gas month costs.

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The upsurge in energy and utility costs pushes inflation and tightens the margins and edges among significant ventures. It also drives up the downstream derivative market. The Euro currency fell to its lowest level as a result of the recent increase in gas costs, which led to a recession in the region. The price of natural gas in Germany at the conclusion of the quarter is USD 222 Mw/hr.

As per Procurement Resource, the EU nations agreed on a natural gas price ceiling as part of their effort to lower the high cost of energy and lessen their reliance on Russian energy. In accordance with the compromise agreement, the price of natural gas will be limited starting on February 15 if month-ahead contracts trading on the Dutch Title Transfer Facility (TTF) in Amsterdam exceed 180 euros (USD 191) per megawatt hour and the price of LNG globally exceeds 35 euros for a period of more than three days. If prices don't fall to 180 euros for three days, the cap would last for at least twenty days.


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