Article 1 Subject matter and scope
This Regulation establishes a temporary market correction mechanism (‘MCM’) for orders placed for trading TTF derivatives and derivatives linked to other virtual trading points (‘VTPs’) in accordance with Article 9, to limit episodes of excessively high gas prices in the Union which do not reflect world market prices.
Article 2 Definitions
For the purposes of this Regulation, the following definitions apply: (1) ‘TTF derivative’ means a commodity derivative as defined in Article 2(1), point (30), of Regulation (EU) No 600/2014 of the European Parliament and of the Council ( 12 ) , traded on a regulated market, the underlying of which is a transaction in the Title Transfer Facility (TTF), a virtual trading point operated by Gasunie Transport Services B.V.; (2) ‘derivative linked to other VTP’ means a commodity derivative as defined in Article 2(1), point (30), of Regulation (EU) No 600/2014, traded on a regulated market, the underlying of which is a transaction in gas in a virtual trading point in the Union; (3) ‘virtual trading point’ or ‘VTP’ means a non-physical commercial point within an entry-exit system where gas is exchanged between a seller and a buyer without the need to book transmission or distribution capacity; (4) ‘front-month TTF derivative’ means a TTF derivative whose expiration date is the nearest among the derivatives with a one-month maturity traded on a given regulated market; (5) ‘-front-year TTF derivative’ means a TTF derivative whose expiration date is the nearest among the derivatives with twelve months maturity traded on a given regulated market; (6) ‘reference price’ means, insofar as available, the daily average price of: — the LNG Northwest Europe Marker price assessment defined as the daily average of ‘Daily Spot Northwest Europe Marker (NWE)’ administered by Platts Benchmark B.V. (the Netherlands) and the ‘Northwest Europe des – half-month 2’ administered by Argus Benchmark Administration B.V. (the Netherlands); with a conversion of LNG price assessments in USD per Metric Million British Thermal Units (MMBtu) into EUR per MWh, on the basis of the European Central Bank’s (‘ECB’) Euro foreign exchange rate and a conversion rate of 1 MMBtu to 0.293071 kWh; — the LNG Mediterranean Marker price assessment defined as the daily average of ‘Daily Spot Mediterranean Marker (MED)’ administered by Platts Benchmark B.V. (the Netherlands), and of the daily average of ‘Iberian peninsula des – half-month 2’, ‘Italy des - half-month 2’ and ‘Greece des - half-month 2’ administered by Argus Benchmark Administration B.V. (the Netherlands); with a conversion of LNG price assessments in USD per MMBtu into EUR per MWh, on the basis of the ECB’s Euro foreign exchange rate and a conversion rate of 1 MMBtu to 0.293071 kWh; — the LNG Northeast Asia Marker price assessment defined as the daily average of ‘LNG Japan/Korea DES 2 Half-Month’ administered by Platts Benchmark B.V. (the Netherlands), and ‘Northeast Asia des (ANEA) - half-month 2’ administered by Argus Benchmark Administration B.V. (the Netherlands); with a conversion of LNG price assessments USD per MMBtu into EUR per MWh, on the basis of the ECB’s Euro foreign exchange rate and a conversion rate of 1 MMBtu to 0.293071 kWh; — the front-month NBP derivative settlement price, as published by ICE Futures Europe (the United Kingdom); with a conversion of Sterling pence per therm into EUR per MWh, on the basis of the ECB’s Euro foreign exchange rate and a conversion rate of 1 therm to 29.3071 kWh; — the price of the daily price assessment carried out by ACER pursuant to Article 18 of Regulation (EU) 2022/2576; (7) ‘regulated market’ means a regulated market defined in Article 4(1), point (21), of Directive 2014/65/EU; (8) ‘market operator’ means a market operator defined in Article 4(1), point (18), of Directive 2014/65/EU.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Since Russia’s unprovoked and unjustified full-scale invasion of Ukraine, supplies of gas to the EU by Russia have been disrupted as a deliberate attempt to use energy as a political weapon. Russia has been for many years the main gas supplier of the EU. Historically, the EU relied on Russia for more than 40% of its gas supplies. The supply of gas has continuously decreased since February 2022. The pipeline flows of gas from Russia was less than 10% of the EU’s gas imports in the first half of 2023. The supply shock caused by Russia had significant impacts on gas price level in the EU. While prices over the previous decade had moved within a band of EUR 5MWh to EUR 35MWh and averaged around EUR 20/MWh, gas prices spiked above EUR 300/MWh in August 2022 at the peak of the crisis and reached levels which were 1000% higher than the average prices seen before in the Union. The highest price levels were reached in one week - 5 consecutive trading days - from 22 to 26 August 2022, when the prices had been consistently above EUR 250/MWh and diverged from the LNG reference price by more than EUR 50/MWh. Since the peak of the crisis, prices have significantly fallen and ranged between EUR 40/MWh and EUR 50/MWh in early Autumn 2023. However, they remain more than twice as high as pre-crisis. Extreme price spikes are highly damaging for the European economy. Gas is widely used by many sectors in the EU economy from SMEs to large industry, in particular gas intensive industries such as ceramics, glass, fertilisers, pulp and paper and chemicals. Moreover, high prices have contagion effects on electricity prices and contribute to increase the overall inflation. Against this background, the Council adopted on 19 December 2022 the emergency Council Regulation (EU) 2022/2578 to establish a gas market correction mechanism (‘MCM’) to protect Union citizens and the economy against excessively high prices. The Regulation will cease to apply on 31 January 2024. This proposal seeks to prolong by one year the period of application of the provisions of Regulation (EU) 2022/2578 in view of the persisting risks for energy supplies, and therefore prices, in the Union. 1.1.1. The main elements of Regulation (EU) 2022/2578 Council Regulation (EU) 2022/2578 of 22 December 2022 sets up a temporary market correction mechanism (‘MCM’) for orders placed for trading derivatives linked to the EU’s virtual trading points (‘VTPs’) with maturities between month-ahead and year-ahead. The MCM is activated when a market correction event occurs, that is, when the front-month TTF derivative settlement price exceeds EUR 180/MWh and is EUR 35 higher than the reference price (reflecting global LNG price trends) for three working days. The MCM has not been activated so far as TTF prices have remained below the triggering thresholds since the entry into force of Council Regulation (EU) 2022/2578. Upon the occurrence of a market correction event, the MCM Regulation sets a dynamic bidding limit, according to which market operators should not accept and market participants should not submit orders for derivatives with prices of EUR 35/MWh above the reference price published by ACER on the previous day. The MCM is automatically deactivated after 20 working days if the dynamic bidding limit is at EUR 180/MWh for three consecutive days. Pursuant to Article 6 of the Regulation, the dynamic bidding limit can be suspended immediately and at any time if it leads to serious market disturbances, affecting the security of supply and intra-Union flows of gas or the proper functioning of the energy derivatives markets. 1.1.2. The current situation: severe difficulties and risks for the EU’s security of gas supply persist The Union’s response under REPowerEU and following initiatives, including the measures set out in Regulation (EU) 2022/2578, prepared the EU to a degraded security of gas supplies situation. If not prolonged, the Regulation will cease to apply on 31 January 2024. However, as of the date of adoption of this proposal, severe difficulties in gas supplies to the Union persist. Due to the significant decrease in Russian pipeline gas imports over the past year, availability of gas supplies to the Union is considerably reduced compared to pre-crisis. With the current pipeline gas import levels, the Union is expected to receive approximately 20 bcm of Russian pipeline imports in 2023, if these unreliable imports are not disrupted altogether. This would be approximately 110 bcm less than in 2021. Global gas markets remain very tight and are expected to remain as such for some time . As noted by the IEA, 1 global LNG supply grew only m odestly in 2022 (4%) and in 2023 (3%) because of “ limited liquefaction capacity additions, outages at major export facilities and declining feed gas supply at LNG plants fed by ageing fields ”. Significant new LNG liquefaction capacity globally (especially in the US and Qatar) is set to come online only as of 2025 but “ market balances remain precarious in the immediate future ” . 2 This situation is still having negative consequences on gas prices which, despite being much lower than the peak experienced in summer 2022, remain higher than pre-crisis with inevitable repercussions on the EU citizens’ purchasing power and the competitiveness of European businesses. Large market volatility is also a consequence of the market tightness and represents an additional risk for the EU economy. Summer and Autumn 2023 saw a number of episodes of significant volatility when prices increased by more than 50% in few weeks. This shows that gas markets are still fragile and may have large reactions to any unexpected and sudden shock to supply and demand, as was the case following the strike in Australian LNG facilities, the Middle East crisis and the disruption of the Balticconnector. A number of risks can , if they materialise, fuel the fear of scarcity which, given the fragility of the market due to its tightness , may trigger large reactions with serious repercussions on prices . These risks include a rebound in Asian liquefied natural gas (LNG) demand that reduces the availability of gas on the global gas market, 3 extreme weather conditions potentially affecting hydropower storage or nuclear production 4 which would require higher recourse to gas-fired power generation, and further possible gas supply disruptions, including a complete halt of gas imports from Russia or a disruption of existing critical gas infrastructure. Armed conflicts of high intensity are now hitting several of the key EU supply regions, in addition to Ukraine (Azerbaijan, Middle East) and this is deteriorating the threat landscape. Recent examples illustrate the likelihood and relevance of the risks related to the disruption of critical gas infrastructure. In September 2022, the NordStream 1 pipeline was damaged by acts of sabotage to such a degree that it currently cannot transport any gas and will not be able to do so in the foreseeable future. In October 2023, the Balticconnector, an important pipeline connecting Finland to Estonia, was disrupted. As a result of the Balticconnector disruption, Finland is now no longer able to meet the N-1 criterion as part of the infrastructure standard defined in Article 5 of Regulation (EU) 2017/1938. The N-1 criterion ensures that Member States take measures so that in case of a disruption of the single largest gas infrastructure, they still have the technical capacity to satisfy their total demand during a peak day. As a result of the Balticconnector disruption, on 27 October 2023 Finland raised its crisis level pursuant to Article 11 of Regulation (EU) 2017/1938 from “early warning” to “alert”, which is the last crisis level before an emergency. This new infrastructure incident illustrates the likelihood and relevance of the risks related to new disruptions of critical gas infrastructure. It should be also noted that the significant reduction in demand for natural gas (-18% between August 2022 and August 2023) is contributing to preserve the gas balance in the EU. This reduction is a result of economic factors (e.g. high prices) and administrative measures adopted by Member States pursuant to Regulation 2022/1369 and its prolongation Regulation (EU) 2023/706 on coordinated gas demand reduction. A possible increase in demand, due to a rebound in the gas use in the residential, commercial and industrial sectors 5 or in case the administrative measures aimed at reducing demand were not prolonged further, represents an additional risk that, given the current tight market conditions, could undermine the EU’s security of gas supply. In a number of subsequent reports of December 2022, February, July and October 2023 , the International Energy Agency (IEA) has consistently been highlighting the lingering risks for the EU security of gas supply and warning against complacency in the light of the improvement of the situation compared to the peak of the crisis in summer 2022. According to the report of October 2023, “ global gas supply is set to remain tight in 2023 ” and “[b]elow-average LNG liquefaction capacity additions are expected to prolong tight supply conditions into 2024”. In its February report, the IEA noted that “ the global balance is subject to an unusually wide range of uncertainties and exogenous risk factors. This includes the possibility of complete cessation of Russian piped gas deliveries to the European Union, as well as a recovery of China’s LNG imports in line with the country’s long-term LNG contracts and a potential lower availability of LNG supply ”. It developed stress scenarios with a halt to Russian gas supplies, LNG supplies remaining tight and weather-related demand increases, which could result in a potential supply-demand gap of 40 bcm in the EU. In its report of July 2023, the IEA highlighted that “ risks and uncertainties remain ahead of the 2023/24 Northern Hemisphere winter ” and “ full storage sites are no guarantee against winter volatility and the risk of renewed market tensions ” . 5 In addition, the European Network of Transmission System Operators (ENTSOG) published its yearly Winter Supply Outlook with a summer overview, in line with Article 8 of Regulation (EC) 715/2009. ENTSOG concluded that although the general security of supply situation in the EU has significantly improved, additional measures may be needed in case of a full Russian supply disruption. In addition, careful management of the storages throughout the winter of 2023-2024 is needed, as a 46% filling level is likely needed at the beginning of the injection season to achieve the 90% storage target set out by Regulation (EU) 2022/1032. 3 The Union’s response under REPowerEU and following initiatives, including the measure set out in Regulation (EU) 2022/2578, contributed to improve the situation. Should the relevant Union measures cease to apply, this would risk altering the stabilised but fragile situation the Union has achieved and could deteriorate the EU resilience to unfavourable events. In light of these persisting severe difficulties and risks for the EU’s security of gas supply and gas prices, and not to alter the current fragile balance, it is necessary and urgent to prolong Regulation (EU) 2022/2578. Hence, this Proposal seeks to prolong by one year the period of application of Regulation 2022/2578. 1.1.3. Reasons for prolonging the Regulation’s provisions in the current situation The different provisions of Regulation (EU) 2022/2578, which the current proposal seeks to prolong, are necessary to address the above-mentioned severe difficulties and risks for the EU’s security of gas supply and gas prices. In March 2023, ACER and ESMA carried out an assessment of the MCM impact since its coming into force and concluded that the MCM has not been activated and no negative effects on energy (and financially-related) markets had arisen until that point in time. The Commission extended the analysis to assess the market developments in more recent months, and founded that the MCM has never been activated and identified no negative effects since the MCM Regulation entered into force. The MCM prevents prices to reach excessively high levels, compared to the international prices, on gas derivative markets, and therefore it limits the negative impact of high prices on the EU citizens’ purchasing power and the competitiveness of European businesses.
Revised version (Article 2 Definitions):
For the purposes of this Regulation, the following definitions apply: (3) ‘virtual trading point’ or ‘VTP’ means a non-physical commercial point within an entry-exit system where gas is exchanged between a seller and a buyer without the need to book transmission or distribution capacity; (4) ‘front-month TTF derivative’ means a TTF derivative whose expiration date is the nearest among the derivatives with a one-month maturity traded on a given regulated market; (5) ‘-front-year TTF derivative’ means a TTF derivative whose expiration date is the nearest among the derivatives with twelve months maturity traded on a given regulated market; (8) ‘market operator’ means a market operator defined in Article 4(1), point (18), of Directive 2014/65/EU.
Article 3 Price monitoring
1. ACER shall constantly monitor the development of the reference price and the front-month TTF derivative settlement price, and the front-month derivative settlement price of derivatives linked to other VTPs. 2. For the purpose of paragraph 1, Platts Benchmark B.V. (the Netherlands) shall notify ACER every day no later than 21:00 (CET) of the daily LNG price assessments of the following markers: the ‘Daily Spot Mediterranean Marker (MED)’, the ‘Daily Spot Northwest Europe Marker (NEW)’ and the ‘Japan Korea Marker (JKM)’. 3. For the purpose of paragraph 1, Argus Benchmark Administration B.V. (the Netherlands) shall notify ACER every day no later than 21:00 (CET) of the daily LNG price assessments of the following markers: the ‘Northwest Europe des – half-month 2’, the ‘Iberian peninsula des - half-month 2’, the ‘Italy des - half-month 2’, the ‘Greece des - half-month 2’ and the ‘Northeast Asia des (ANEA) - half-month 2’. 4. ACER shall calculate the daily reference price every day based on the information received pursuant to paragraph 1. ACER shall publish the daily reference price daily on its website no later than 23:59 CET.
Article 4 Market correction event
1. The MCM for the front-year TTF derivative settlement price shall be activated when a market correction event occurs. A market correction event shall be considered to occur when the front-month TTF derivative settlement price, as published by ICE Endex B.V. (the Netherlands): (a) exceeds EUR 180/MWh for three working days; and (b) is EUR 35 higher than the reference price during the period referred to in point (a). 2. Upon adoption of the implementing act referred to in Article 9(1), a market correction event related to derivatives linked to other VTPs shall also occur under the conditions defined in that implementing act pursuant to the criteria set out in Article 9(2). 3. If ACER observes that a market correction event has occurred, it shall publish a notice stating that a market correction event has occurred (‘market correction notice’) in a clear and visible manner on its website no later than 23:59 CET and shall inform the Council, the Commission, ECB and ESMA of the market correction event. 4. Market operators on the TTF derivatives market and TTF derivatives market participants shall monitor the website of ACER on a daily basis. 5. As from the day after the publication of a market correction notice, market operators shall not accept and TTF derivatives market participants shall not submit orders for TTF derivatives that are due to expire in the period from the expiry date of the front-month TTF derivative to the expiry date of the front-year TTF derivative with prices of EUR 35 above the reference price published by ACER on the previous day (‘dynamic bidding limit’). If the reference price is below EUR 145/MWh, the dynamic bidding limit shall remain at the sum of EUR 145 and EUR 35 . 6. Upon adoption of the implementing act referred to in Article 9(1), a dynamic bidding limit shall apply to derivatives linked to other VTPs under the conditions defined in that implementing act pursuant to the criteria set out in Article 9(2). 7. Once activated by ACER, the dynamic bidding limit shall apply for a minimum of 20 working days, unless suspended by the Commission in accordance with Article 6 or deactivated in accordance with Article 5(1). 8. In order for the Commission to be able to suspend, by means of an implementing decision, the activation of the MCM by ACER swiftly if need be, in case there are, based on the results of ACER monitoring pursuant to Article 3(1), concrete indications that a market correction event pursuant to Article 4(1), point b, is imminent, the Commission shall without delay invite ECB, ESMA and, where appropriate, the European Network of Transmission System Operators for Gas (‘ENTSOG’) and the Gas Coordination Group (the ‘GCG’) to provide an assessment of the impact of a possible market correction event on the security of supply, intra-Union flows of gas and financial stability. That assessment shall take into account price developments in other relevant organised marketplaces, notably in Asia or the United States, as reflected in the ‘Joint Japan Korea Marker’ or the ‘Henry Hub Gas Price Assessment’, both administered by Platts Benchmark B.V. (the Netherlands) and published by S&P Global Inc. (New York). 9. After having assessed the effect of the dynamic bidding limit on gas and electricity consumption and progress with the demand reduction targets provided for in Articles 3 and 5 of Regulation (EU) 2022/1369 and in Articles 3 and 4 of Regulation (EU) 2022/1854, the Commission may also propose an amendment to Regulation (EU) 2022/1369 in order to adapt it to the new situation. 10. In the case of a market correction event, the Commission shall, without undue delay, ask the ECB for advice on the risk of unintended disturbances for the stability and orderly functioning of energy derivative markets.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Since Russia’s unprovoked and unjustified full-scale invasion of Ukraine, supplies of gas to the EU by Russia have been disrupted as a deliberate attempt to use energy as a political weapon. Russia has been for many years the main gas supplier of the EU. Historically, the EU relied on Russia for more than 40% of its gas supplies. The supply of gas has continuously decreased since February 2022. The pipeline flows of gas from Russia was less than 10% of the EU’s gas imports in the first half of 2023. The supply shock caused by Russia had significant impacts on gas price level in the EU. While prices over the previous decade had moved within a band of EUR 5MWh to EUR 35MWh and averaged around EUR 20/MWh, gas prices spiked above EUR 300/MWh in August 2022 at the peak of the crisis and reached levels which were 1000% higher than the average prices seen before in the Union. The highest price levels were reached in one week - 5 consecutive trading days - from 22 to 26 August 2022, when the prices had been consistently above EUR 250/MWh and diverged from the LNG reference price by more than EUR 50/MWh. Since the peak of the crisis, prices have significantly fallen and ranged between EUR 40/MWh and EUR 50/MWh in early Autumn 2023. However, they remain more than twice as high as pre-crisis. Extreme price spikes are highly damaging for the European economy. Gas is widely used by many sectors in the EU economy from SMEs to large industry, in particular gas intensive industries such as ceramics, glass, fertilisers, pulp and paper and chemicals. Moreover, high prices have contagion effects on electricity prices and contribute to increase the overall inflation. Against this background, the Council adopted on 19 December 2022 the emergency Council Regulation (EU) 2022/2578 to establish a gas market correction mechanism (‘MCM’) to protect Union citizens and the economy against excessively high prices. The Regulation will cease to apply on 31 January 2024. This proposal seeks to prolong by one year the period of application of the provisions of Regulation (EU) 2022/2578 in view of the persisting risks for energy supplies, and therefore prices, in the Union. 1.1.1. The main elements of Regulation (EU) 2022/2578 Council Regulation (EU) 2022/2578 of 22 December 2022 sets up a temporary market correction mechanism (‘MCM’) for orders placed for trading derivatives linked to the EU’s virtual trading points (‘VTPs’) with maturities between month-ahead and year-ahead. The MCM is activated when a market correction event occurs, that is, when the front-month TTF derivative settlement price exceeds EUR 180/MWh and is EUR 35 higher than the reference price (reflecting global LNG price trends) for three working days. The MCM has not been activated so far as TTF prices have remained below the triggering thresholds since the entry into force of Council Regulation (EU) 2022/2578. Upon the occurrence of a market correction event, the MCM Regulation sets a dynamic bidding limit, according to which market operators should not accept and market participants should not submit orders for derivatives with prices of EUR 35/MWh above the reference price published by ACER on the previous day. The MCM is automatically deactivated after 20 working days if the dynamic bidding limit is at EUR 180/MWh for three consecutive days. Pursuant to Article 6 of the Regulation, the dynamic bidding limit can be suspended immediately and at any time if it leads to serious market disturbances, affecting the security of supply and intra-Union flows of gas or the proper functioning of the energy derivatives markets. 1.1.2. The current situation: severe difficulties and risks for the EU’s security of gas supply persist The Union’s response under REPowerEU and following initiatives, including the measures set out in Regulation (EU) 2022/2578, prepared the EU to a degraded security of gas supplies situation. If not prolonged, the Regulation will cease to apply on 31 January 2024. However, as of the date of adoption of this proposal, severe difficulties in gas supplies to the Union persist. Due to the significant decrease in Russian pipeline gas imports over the past year, availability of gas supplies to the Union is considerably reduced compared to pre-crisis. With the current pipeline gas import levels, the Union is expected to receive approximately 20 bcm of Russian pipeline imports in 2023, if these unreliable imports are not disrupted altogether. This would be approximately 110 bcm less than in 2021. Global gas markets remain very tight and are expected to remain as such for some time . As noted by the IEA, 1 global LNG supply grew only m odestly in 2022 (4%) and in 2023 (3%) because of “ limited liquefaction capacity additions, outages at major export facilities and declining feed gas supply at LNG plants fed by ageing fields ”. Significant new LNG liquefaction capacity globally (especially in the US and Qatar) is set to come online only as of 2025 but “ market balances remain precarious in the immediate future ” . 2 This situation is still having negative consequences on gas prices which, despite being much lower than the peak experienced in summer 2022, remain higher than pre-crisis with inevitable repercussions on the EU citizens’ purchasing power and the competitiveness of European businesses. Large market volatility is also a consequence of the market tightness and represents an additional risk for the EU economy. Summer and Autumn 2023 saw a number of episodes of significant volatility when prices increased by more than 50% in few weeks. This shows that gas markets are still fragile and may have large reactions to any unexpected and sudden shock to supply and demand, as was the case following the strike in Australian LNG facilities, the Middle East crisis and the disruption of the Balticconnector. A number of risks can , if they materialise, fuel the fear of scarcity which, given the fragility of the market due to its tightness , may trigger large reactions with serious repercussions on prices . These risks include a rebound in Asian liquefied natural gas (LNG) demand that reduces the availability of gas on the global gas market, 3 extreme weather conditions potentially affecting hydropower storage or nuclear production 4 which would require higher recourse to gas-fired power generation, and further possible gas supply disruptions, including a complete halt of gas imports from Russia or a disruption of existing critical gas infrastructure. Armed conflicts of high intensity are now hitting several of the key EU supply regions, in addition to Ukraine (Azerbaijan, Middle East) and this is deteriorating the threat landscape. Recent examples illustrate the likelihood and relevance of the risks related to the disruption of critical gas infrastructure. In September 2022, the NordStream 1 pipeline was damaged by acts of sabotage to such a degree that it currently cannot transport any gas and will not be able to do so in the foreseeable future. In October 2023, the Balticconnector, an important pipeline connecting Finland to Estonia, was disrupted. As a result of the Balticconnector disruption, Finland is now no longer able to meet the N-1 criterion as part of the infrastructure standard defined in Article 5 of Regulation (EU) 2017/1938. The N-1 criterion ensures that Member States take measures so that in case of a disruption of the single largest gas infrastructure, they still have the technical capacity to satisfy their total demand during a peak day. As a result of the Balticconnector disruption, on 27 October 2023 Finland raised its crisis level pursuant to Article 11 of Regulation (EU) 2017/1938 from “early warning” to “alert”, which is the last crisis level before an emergency. This new infrastructure incident illustrates the likelihood and relevance of the risks related to new disruptions of critical gas infrastructure. It should be also noted that the significant reduction in demand for natural gas (-18% between August 2022 and August 2023) is contributing to preserve the gas balance in the EU. This reduction is a result of economic factors (e.g. high prices) and administrative measures adopted by Member States pursuant to Regulation 2022/1369 and its prolongation Regulation (EU) 2023/706 on coordinated gas demand reduction. A possible increase in demand, due to a rebound in the gas use in the residential, commercial and industrial sectors 5 or in case the administrative measures aimed at reducing demand were not prolonged further, represents an additional risk that, given the current tight market conditions, could undermine the EU’s security of gas supply. In a number of subsequent reports of December 2022, February, July and October 2023 , the International Energy Agency (IEA) has consistently been highlighting the lingering risks for the EU security of gas supply and warning against complacency in the light of the improvement of the situation compared to the peak of the crisis in summer 2022. According to the report of October 2023, “ global gas supply is set to remain tight in 2023 ” and “[b]elow-average LNG liquefaction capacity additions are expected to prolong tight supply conditions into 2024”. In its February report, the IEA noted that “ the global balance is subject to an unusually wide range of uncertainties and exogenous risk factors. This includes the possibility of complete cessation of Russian piped gas deliveries to the European Union, as well as a recovery of China’s LNG imports in line with the country’s long-term LNG contracts and a potential lower availability of LNG supply ”. It developed stress scenarios with a halt to Russian gas supplies, LNG supplies remaining tight and weather-related demand increases, which could result in a potential supply-demand gap of 40 bcm in the EU. In its report of July 2023, the IEA highlighted that “ risks and uncertainties remain ahead of the 2023/24 Northern Hemisphere winter ” and “ full storage sites are no guarantee against winter volatility and the risk of renewed market tensions ” . 5 In addition, the European Network of Transmission System Operators (ENTSOG) published its yearly Winter Supply Outlook with a summer overview, in line with Article 8 of Regulation (EC) 715/2009. ENTSOG concluded that although the general security of supply situation in the EU has significantly improved, additional measures may be needed in case of a full Russian supply disruption. In addition, careful management of the storages throughout the winter of 2023-2024 is needed, as a 46% filling level is likely needed at the beginning of the injection season to achieve the 90% storage target set out by Regulation (EU) 2022/1032. 3 The Union’s response under REPowerEU and following initiatives, including the measure set out in Regulation (EU) 2022/2578, contributed to improve the situation. Should the relevant Union measures cease to apply, this would risk altering the stabilised but fragile situation the Union has achieved and could deteriorate the EU resilience to unfavourable events. In light of these persisting severe difficulties and risks for the EU’s security of gas supply and gas prices, and not to alter the current fragile balance, it is necessary and urgent to prolong Regulation (EU) 2022/2578. Hence, this Proposal seeks to prolong by one year the period of application of Regulation 2022/2578. 1.1.3. Reasons for prolonging the Regulation’s provisions in the current situation The different provisions of Regulation (EU) 2022/2578, which the current proposal seeks to prolong, are necessary to address the above-mentioned severe difficulties and risks for the EU’s security of gas supply and gas prices. In March 2023, ACER and ESMA carried out an assessment of the MCM impact since its coming into force and concluded that the MCM has not been activated and no negative effects on energy (and financially-related) markets had arisen until that point in time. The Commission extended the analysis to assess the market developments in more recent months, and founded that the MCM has never been activated and identified no negative effects since the MCM Regulation entered into force. The MCM prevents prices to reach excessively high levels, compared to the international prices, on gas derivative markets, and therefore it limits the negative impact of high prices on the EU citizens’ purchasing power and the competitiveness of European businesses.
Revised version (Article 4 Market correction event):
2. Upon adoption of the implementing act referred to in Article 9(1), a market correction event related to derivatives linked to other VTPs shall also occur under the conditions defined in that implementing act pursuant to the criteria set out in Article 9(2). 3. If ACER observes that a market correction event has occurred, it shall publish a notice stating that a market correction event has occurred (‘market correction notice’) in a clear and visible manner on its website no later than 23:59 CET and shall inform the Council, the Commission, ECB and ESMA of the market correction event. 4. Market operators on the TTF derivatives market and TTF derivatives market participants shall monitor the website of ACER on a daily basis. 5. As from the day after the publication of a market correction notice, market operators shall not accept and TTF derivatives market participants shall not submit orders for TTF derivatives that are due to expire in the period from the expiry date of the front-month TTF derivative to the expiry date of the front-year TTF derivative with prices of EUR 35 above the reference price published by ACER on the previous day (‘dynamic bidding limit’). If the reference price is below EUR 145/MWh, the dynamic bidding limit shall remain at the sum of EUR 145 and EUR 35. 6. Upon adoption of the implementing act referred to in Article 9(1), a dynamic bidding limit shall apply to derivatives linked to other VTPs under the conditions defined in that implementing act pursuant to the criteria set out in Article 9(2). 7. Once activated by ACER, the dynamic bidding limit shall apply for a minimum of 20 working days, unless suspended by the Commission in accordance with Article 6 or deactivated in accordance with Article 5(1). 8. In order for the Commission to be able to suspend, by means of an implementing decision, the activation of the MCM by ACER swiftly if need be, in case there are, based on the results of ACER monitoring pursuant to Article 3(1), concrete indications that a market correction event pursuant to Article 4(1), point b, is imminent, the Commission shall without delay invite ECB, ESMA and, where appropriate, the European Network of Transmission System Operators for Gas (‘ENTSOG’) and the Gas Coordination Group (the ‘GCG’) to provide an assessment of the impact of a possible market correction event on the security of supply, intra-Union flows of gas and financial stability. That assessment shall take into account price developments in other relevant organised marketplaces, notably in Asia or the United States, as reflected in the ‘Joint Japan Korea Marker’ or the ‘Henry Hub Gas Price Assessment’, both administered by Platts Benchmark B.V. (the Netherlands) and published by S&P Global Inc. (New York). 9. After having assessed the effect of the dynamic bidding limit on gas and electricity consumption and progress with the demand reduction targets provided for in Articles 3 and 5 of Regulation (EU) 2022/1369 and in Articles 3 and 4 of Regulation (EU) 2022/1854, the Commission may also propose an amendment to Regulation (EU) 2022/1369 in order to adapt it to the new situation. 10. In the case of a market correction event, the Commission shall, without undue delay, ask the ECB for advice on the risk of unintended disturbances for the stability and orderly functioning of energy derivative markets.
Article 5 Deactivation of the MCM
1. The dynamic bidding limit shall be deactivated, 20 working days from the occurrence of the market correction event in accordance with Article 4(5) or afterwards, if the reference price is below EUR 145/MWh for three consecutive working days. 2. Where a regional or a Union emergency has been declared by the Commission, notably in case of a significant deterioration of the gas supply situation leading to a situation where the gas supply is insufficient to meet the remaining gas demand (‘rationing’), in accordance with Article 12(1) of Regulation (EU) 2017/1938, the dynamic bidding limit shall be deactivated. 3. ACER shall publish a notice on its website without delay and notify the Council, the Commission, ECB and ESMA that a deactivation event as referred to in paragraph 1 has occurred (‘deactivation notice’).
Article 6 Suspension of the MCM
1. ESMA, ACER, ENTSOG and the GCG shall constantly monitor the effects of the dynamic bidding limit on financial and energy markets and on security of supply in the case of the activation of the MCM. 2. On basis of the monitoring referred to in paragraph 1, the Commission shall suspend the MCM at any time by means of an implementing decision, where unintended market disturbances or manifest risks of such disturbances occur that negatively affect security of supply, intra-Union flows of gas or financial stability (‘suspension decision’). In the assessment, the Commission shall take into account whether the activation of MCM: (a) jeopardises the Union’s security of gas supply; the elements to be taken into account in the assessment of the risks for the security of supply shall be a potential significant deviation of one the components of the reference price compared to the historical trend and a significant drop of quarterly LNG imports into the Union compared to the same quarter of the previous year; (b) occurs during a period where the mandatory demand reduction targets pursuant to Article 5 of Regulation (EU) 2022/1369 are not met at Union level, negatively affects the progress made in implementing the gas savings target pursuant to Article 3 of Regulation (EU) 2022/1369, taking into account the need to ensure that price signals incentivise demand reduction, or leads to an overall increase in gas consumption by 15 % in one month or by 10 % in two consecutive months compared to the respective average consumption for the same months during the five consecutive years preceding 1 February 2023, on the basis of data on gas consumption and demand reduction received from Member States pursuant to Article 8 of Regulation (EU) 2022/1369; (c) prevents market-based intra-Union flows of gas according to ACER monitoring data; (d) affects, on the basis of ESMA’s report on the impact of the activation of the MCM by ESMA and any advice of the ECB requested by the Commission for that purpose, the stability and orderly functioning of energy derivative markets, in particular; where it leads to a significant increase of margin calls or a significant decrease in TTF derivatives transactions within the Union in one month, compared to the same month of the previous year or to a significant shift of TTF-derivative transactions to trading venues outside the Union; (e) leads to substantial differences between gas market prices in the different organised marketplaces across the Union, and at other relevant organised marketplaces, such as in Asia or the United States, as reflected in the ‘Joint Japan Korea Marker’ or the ‘Henry Hub Gas Price Assessment’, both administered by Platts Benchmark B.V. (the Netherlands); (f) affects the validity of existing gas supply contracts, including long-term gas supply contracts. 3. A suspension decision shall be taken without undue delay and be published in the Official Journal of the European Union . From the day following publication of a suspension decision, and for as long as specified in the suspension decision, the dynamic bidding limit shall cease to apply. 4. ACER, ESMA, ENTSOG and the GCG shall assist the Commission in the tasks pursuant to Articles 4, 5 and 6. The report of ESMA pursuant to paragraph (2), point (d), of this Article shall be issued no later than 48 hours or within the same day in urgent cases upon a request by the Commission. 5. In carrying out its tasks pursuant to Articles 4, 5 and 6, the Commission may consult the ECB for advice on any matter relating to its task pursuant to Article 127(5) TFEU to contribute to the smooth conduct of policies relating to the prudential supervision of credit institutions and the stability of the financial system.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Since Russia’s unprovoked and unjustified full-scale invasion of Ukraine, supplies of gas to the EU by Russia have been disrupted as a deliberate attempt to use energy as a political weapon. Russia has been for many years the main gas supplier of the EU. Historically, the EU relied on Russia for more than 40% of its gas supplies. The supply of gas has continuously decreased since February 2022. The pipeline flows of gas from Russia was less than 10% of the EU’s gas imports in the first half of 2023. The supply shock caused by Russia had significant impacts on gas price level in the EU. While prices over the previous decade had moved within a band of EUR 5MWh to EUR 35MWh and averaged around EUR 20/MWh, gas prices spiked above EUR 300/MWh in August 2022 at the peak of the crisis and reached levels which were 1000% higher than the average prices seen before in the Union. The highest price levels were reached in one week - 5 consecutive trading days - from 22 to 26 August 2022, when the prices had been consistently above EUR 250/MWh and diverged from the LNG reference price by more than EUR 50/MWh. Since the peak of the crisis, prices have significantly fallen and ranged between EUR 40/MWh and EUR 50/MWh in early Autumn 2023. However, they remain more than twice as high as pre-crisis. Extreme price spikes are highly damaging for the European economy. Gas is widely used by many sectors in the EU economy from SMEs to large industry, in particular gas intensive industries such as ceramics, glass, fertilisers, pulp and paper and chemicals. Moreover, high prices have contagion effects on electricity prices and contribute to increase the overall inflation. Against this background, the Council adopted on 19 December 2022 the emergency Council Regulation (EU) 2022/2578 to establish a gas market correction mechanism (‘MCM’) to protect Union citizens and the economy against excessively high prices. The Regulation will cease to apply on 31 January 2024. This proposal seeks to prolong by one year the period of application of the provisions of Regulation (EU) 2022/2578 in view of the persisting risks for energy supplies, and therefore prices, in the Union. 1.1.1. The main elements of Regulation (EU) 2022/2578 Council Regulation (EU) 2022/2578 of 22 December 2022 sets up a temporary market correction mechanism (‘MCM’) for orders placed for trading derivatives linked to the EU’s virtual trading points (‘VTPs’) with maturities between month-ahead and year-ahead. The MCM is activated when a market correction event occurs, that is, when the front-month TTF derivative settlement price exceeds EUR 180/MWh and is EUR 35 higher than the reference price (reflecting global LNG price trends) for three working days. The MCM has not been activated so far as TTF prices have remained below the triggering thresholds since the entry into force of Council Regulation (EU) 2022/2578. Upon the occurrence of a market correction event, the MCM Regulation sets a dynamic bidding limit, according to which market operators should not accept and market participants should not submit orders for derivatives with prices of EUR 35/MWh above the reference price published by ACER on the previous day. The MCM is automatically deactivated after 20 working days if the dynamic bidding limit is at EUR 180/MWh for three consecutive days. Pursuant to Article 6 of the Regulation, the dynamic bidding limit can be suspended immediately and at any time if it leads to serious market disturbances, affecting the security of supply and intra-Union flows of gas or the proper functioning of the energy derivatives markets. 1.1.2. The current situation: severe difficulties and risks for the EU’s security of gas supply persist The Union’s response under REPowerEU and following initiatives, including the measures set out in Regulation (EU) 2022/2578, prepared the EU to a degraded security of gas supplies situation. If not prolonged, the Regulation will cease to apply on 31 January 2024. However, as of the date of adoption of this proposal, severe difficulties in gas supplies to the Union persist. Due to the significant decrease in Russian pipeline gas imports over the past year, availability of gas supplies to the Union is considerably reduced compared to pre-crisis. With the current pipeline gas import levels, the Union is expected to receive approximately 20 bcm of Russian pipeline imports in 2023, if these unreliable imports are not disrupted altogether. This would be approximately 110 bcm less than in 2021. Global gas markets remain very tight and are expected to remain as such for some time . As noted by the IEA, 1 global LNG supply grew only m odestly in 2022 (4%) and in 2023 (3%) because of “ limited liquefaction capacity additions, outages at major export facilities and declining feed gas supply at LNG plants fed by ageing fields ”. Significant new LNG liquefaction capacity globally (especially in the US and Qatar) is set to come online only as of 2025 but “ market balances remain precarious in the immediate future ” . 2 This situation is still having negative consequences on gas prices which, despite being much lower than the peak experienced in summer 2022, remain higher than pre-crisis with inevitable repercussions on the EU citizens’ purchasing power and the competitiveness of European businesses. Large market volatility is also a consequence of the market tightness and represents an additional risk for the EU economy. Summer and Autumn 2023 saw a number of episodes of significant volatility when prices increased by more than 50% in few weeks. This shows that gas markets are still fragile and may have large reactions to any unexpected and sudden shock to supply and demand, as was the case following the strike in Australian LNG facilities, the Middle East crisis and the disruption of the Balticconnector. A number of risks can , if they materialise, fuel the fear of scarcity which, given the fragility of the market due to its tightness , may trigger large reactions with serious repercussions on prices . These risks include a rebound in Asian liquefied natural gas (LNG) demand that reduces the availability of gas on the global gas market, 3 extreme weather conditions potentially affecting hydropower storage or nuclear production 4 which would require higher recourse to gas-fired power generation, and further possible gas supply disruptions, including a complete halt of gas imports from Russia or a disruption of existing critical gas infrastructure. Armed conflicts of high intensity are now hitting several of the key EU supply regions, in addition to Ukraine (Azerbaijan, Middle East) and this is deteriorating the threat landscape. Recent examples illustrate the likelihood and relevance of the risks related to the disruption of critical gas infrastructure. In September 2022, the NordStream 1 pipeline was damaged by acts of sabotage to such a degree that it currently cannot transport any gas and will not be able to do so in the foreseeable future. In October 2023, the Balticconnector, an important pipeline connecting Finland to Estonia, was disrupted. As a result of the Balticconnector disruption, Finland is now no longer able to meet the N-1 criterion as part of the infrastructure standard defined in Article 5 of Regulation (EU) 2017/1938. The N-1 criterion ensures that Member States take measures so that in case of a disruption of the single largest gas infrastructure, they still have the technical capacity to satisfy their total demand during a peak day. As a result of the Balticconnector disruption, on 27 October 2023 Finland raised its crisis level pursuant to Article 11 of Regulation (EU) 2017/1938 from “early warning” to “alert”, which is the last crisis level before an emergency. This new infrastructure incident illustrates the likelihood and relevance of the risks related to new disruptions of critical gas infrastructure. It should be also noted that the significant reduction in demand for natural gas (-18% between August 2022 and August 2023) is contributing to preserve the gas balance in the EU. This reduction is a result of economic factors (e.g. high prices) and administrative measures adopted by Member States pursuant to Regulation 2022/1369 and its prolongation Regulation (EU) 2023/706 on coordinated gas demand reduction. A possible increase in demand, due to a rebound in the gas use in the residential, commercial and industrial sectors 5 or in case the administrative measures aimed at reducing demand were not prolonged further, represents an additional risk that, given the current tight market conditions, could undermine the EU’s security of gas supply. In a number of subsequent reports of December 2022, February, July and October 2023 , the International Energy Agency (IEA) has consistently been highlighting the lingering risks for the EU security of gas supply and warning against complacency in the light of the improvement of the situation compared to the peak of the crisis in summer 2022. According to the report of October 2023, “ global gas supply is set to remain tight in 2023 ” and “[b]elow-average LNG liquefaction capacity additions are expected to prolong tight supply conditions into 2024”. In its February report, the IEA noted that “ the global balance is subject to an unusually wide range of uncertainties and exogenous risk factors. This includes the possibility of complete cessation of Russian piped gas deliveries to the European Union, as well as a recovery of China’s LNG imports in line with the country’s long-term LNG contracts and a potential lower availability of LNG supply ”. It developed stress scenarios with a halt to Russian gas supplies, LNG supplies remaining tight and weather-related demand increases, which could result in a potential supply-demand gap of 40 bcm in the EU. In its report of July 2023, the IEA highlighted that “ risks and uncertainties remain ahead of the 2023/24 Northern Hemisphere winter ” and “ full storage sites are no guarantee against winter volatility and the risk of renewed market tensions ” . 5 In addition, the European Network of Transmission System Operators (ENTSOG) published its yearly Winter Supply Outlook with a summer overview, in line with Article 8 of Regulation (EC) 715/2009. ENTSOG concluded that although the general security of supply situation in the EU has significantly improved, additional measures may be needed in case of a full Russian supply disruption. In addition, careful management of the storages throughout the winter of 2023-2024 is needed, as a 46% filling level is likely needed at the beginning of the injection season to achieve the 90% storage target set out by Regulation (EU) 2022/1032. 3 The Union’s response under REPowerEU and following initiatives, including the measure set out in Regulation (EU) 2022/2578, contributed to improve the situation. Should the relevant Union measures cease to apply, this would risk altering the stabilised but fragile situation the Union has achieved and could deteriorate the EU resilience to unfavourable events. In light of these persisting severe difficulties and risks for the EU’s security of gas supply and gas prices, and not to alter the current fragile balance, it is necessary and urgent to prolong Regulation (EU) 2022/2578. Hence, this Proposal seeks to prolong by one year the period of application of Regulation 2022/2578. 1.1.3. Reasons for prolonging the Regulation’s provisions in the current situation The different provisions of Regulation (EU) 2022/2578, which the current proposal seeks to prolong, are necessary to address the above-mentioned severe difficulties and risks for the EU’s security of gas supply and gas prices. In March 2023, ACER and ESMA carried out an assessment of the MCM impact since its coming into force and concluded that the MCM has not been activated and no negative effects on energy (and financially-related) markets had arisen until that point in time. The Commission extended the analysis to assess the market developments in more recent months, and founded that the MCM has never been activated and identified no negative effects since the MCM Regulation entered into force. The MCM prevents prices to reach excessively high levels, compared to the international prices, on gas derivative markets, and therefore it limits the negative impact of high prices on the EU citizens’ purchasing power and the competitiveness of European businesses.
Revised version (Article 6 Suspension of the MCM):
1. ESMA, ACER, ENTSOG and the GCG shall constantly monitor the effects of the dynamic bidding limit on financial and energy markets and on security of supply in the case of the activation of the MCM. 3. A suspension decision shall be taken without undue delay and be published in the Official Journal of the European Union . From the day following publication of a suspension decision, and for as long as specified in the suspension decision, the dynamic bidding limit shall cease to apply. 4. ACER, ESMA, ENTSOG and the GCG shall assist the Commission in the tasks pursuant to Articles 4, 5 and 6. The report of ESMA pursuant to paragraph (2), point (d), of this Article shall be issued no later than 48 hours or within the same day in urgent cases upon a request by the Commission. 5. In carrying out its tasks pursuant to Articles 4, 5 and 6, the Commission may consult the ECB for advice on any matter relating to its task pursuant to Article 127(5) TFEU to contribute to the smooth conduct of policies relating to the prudential supervision of credit institutions and the stability of the financial system.
Article 7 Professional secrecy
1. Any confidential information received, exchanged, or transmitted pursuant to this Regulation shall be subject to the conditions of professional secrecy laid down in this Article. 2. The obligation of professional secrecy applies to all persons who work or who have worked for ACER or for any authority or market undertaking or natural or legal person to whom the competent authority has delegated its powers, including auditors and experts contracted by the competent authority. 3. Information covered by professional secrecy may not be disclosed to any other person or authority except by virtue of provisions laid down by Union or national law. 4. All information exchanged between the competent authorities under this Regulation that concerns business or operational conditions, and other economic or personal affairs shall be considered confidential and shall be subject to the requirements of professional secrecy, except where the competent authority states at the time of communication that such information may be disclosed or where such disclosure is necessary for legal proceedings.
Article 8 Effects assessment
1. ESMA and ACER shall assess the effects of the MCM on financial and energy markets and on security of supply, notably to verify whether the key elements of the MCM are still appropriate in light of the developments as regards the financial and energy market and security of supply. 2. ESMA and ACER shall in the effects assessment in particular carry out an analysis concerning the criteria set out in Article 9(2). That assessment shall notably verify whether the limitation to TTF-derivatives led to arbitrage by market participants between corrected and non-corrected derivatives with negative impact on financial or energy markets, and to the detriment of consumers. 3. ESMA and ACER shall also assess whether: (a) the exclusion of over-the-counter (‘OTC’) trading from the scope of this Regulation led to significant shifts of TTF derivatives trading to OTC markets, endangering the stability of financial or energy markets; (b) the MCM led to a significant decrease in TTF derivatives transactions within the Union, or to a significant shift of TTF derivative transactions to trading venues outside the Union; 4. ESMA and ACER shall additionally assess whether the following needs to be reviewed: (a) the elements taken into account for the reference price; (b) the conditions set out in Article 4(1); (c) the dynamic bidding limit. 5. The reports from ESMA and ACER pursuant to paragraph 1 shall be submitted to the Commission by 1 March 2023. ESMA and ACER shall publish a preliminary data report concerning introduction of the MCM by 23 January 2023.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Since Russia’s unprovoked and unjustified full-scale invasion of Ukraine, supplies of gas to the EU by Russia have been disrupted as a deliberate attempt to use energy as a political weapon. Russia has been for many years the main gas supplier of the EU. Historically, the EU relied on Russia for more than 40% of its gas supplies. The supply of gas has continuously decreased since February 2022. The pipeline flows of gas from Russia was less than 10% of the EU’s gas imports in the first half of 2023. The supply shock caused by Russia had significant impacts on gas price level in the EU. While prices over the previous decade had moved within a band of EUR 5MWh to EUR 35MWh and averaged around EUR 20/MWh, gas prices spiked above EUR 300/MWh in August 2022 at the peak of the crisis and reached levels which were 1000% higher than the average prices seen before in the Union. The highest price levels were reached in one week - 5 consecutive trading days - from 22 to 26 August 2022, when the prices had been consistently above EUR 250/MWh and diverged from the LNG reference price by more than EUR 50/MWh. Since the peak of the crisis, prices have significantly fallen and ranged between EUR 40/MWh and EUR 50/MWh in early Autumn 2023. However, they remain more than twice as high as pre-crisis. Extreme price spikes are highly damaging for the European economy. Gas is widely used by many sectors in the EU economy from SMEs to large industry, in particular gas intensive industries such as ceramics, glass, fertilisers, pulp and paper and chemicals. Moreover, high prices have contagion effects on electricity prices and contribute to increase the overall inflation. Against this background, the Council adopted on 19 December 2022 the emergency Council Regulation (EU) 2022/2578 to establish a gas market correction mechanism (‘MCM’) to protect Union citizens and the economy against excessively high prices. The Regulation will cease to apply on 31 January 2024. This proposal seeks to prolong by one year the period of application of the provisions of Regulation (EU) 2022/2578 in view of the persisting risks for energy supplies, and therefore prices, in the Union. 1.1.1. The main elements of Regulation (EU) 2022/2578 Council Regulation (EU) 2022/2578 of 22 December 2022 sets up a temporary market correction mechanism (‘MCM’) for orders placed for trading derivatives linked to the EU’s virtual trading points (‘VTPs’) with maturities between month-ahead and year-ahead. The MCM is activated when a market correction event occurs, that is, when the front-month TTF derivative settlement price exceeds EUR 180/MWh and is EUR 35 higher than the reference price (reflecting global LNG price trends) for three working days. The MCM has not been activated so far as TTF prices have remained below the triggering thresholds since the entry into force of Council Regulation (EU) 2022/2578. Upon the occurrence of a market correction event, the MCM Regulation sets a dynamic bidding limit, according to which market operators should not accept and market participants should not submit orders for derivatives with prices of EUR 35/MWh above the reference price published by ACER on the previous day. The MCM is automatically deactivated after 20 working days if the dynamic bidding limit is at EUR 180/MWh for three consecutive days. Pursuant to Article 6 of the Regulation, the dynamic bidding limit can be suspended immediately and at any time if it leads to serious market disturbances, affecting the security of supply and intra-Union flows of gas or the proper functioning of the energy derivatives markets. 1.1.2. The current situation: severe difficulties and risks for the EU’s security of gas supply persist The Union’s response under REPowerEU and following initiatives, including the measures set out in Regulation (EU) 2022/2578, prepared the EU to a degraded security of gas supplies situation. If not prolonged, the Regulation will cease to apply on 31 January 2024. However, as of the date of adoption of this proposal, severe difficulties in gas supplies to the Union persist. Due to the significant decrease in Russian pipeline gas imports over the past year, availability of gas supplies to the Union is considerably reduced compared to pre-crisis. With the current pipeline gas import levels, the Union is expected to receive approximately 20 bcm of Russian pipeline imports in 2023, if these unreliable imports are not disrupted altogether. This would be approximately 110 bcm less than in 2021. Global gas markets remain very tight and are expected to remain as such for some time . As noted by the IEA, 1 global LNG supply grew only m odestly in 2022 (4%) and in 2023 (3%) because of “ limited liquefaction capacity additions, outages at major export facilities and declining feed gas supply at LNG plants fed by ageing fields ”. Significant new LNG liquefaction capacity globally (especially in the US and Qatar) is set to come online only as of 2025 but “ market balances remain precarious in the immediate future ” . 2 This situation is still having negative consequences on gas prices which, despite being much lower than the peak experienced in summer 2022, remain higher than pre-crisis with inevitable repercussions on the EU citizens’ purchasing power and the competitiveness of European businesses. Large market volatility is also a consequence of the market tightness and represents an additional risk for the EU economy. Summer and Autumn 2023 saw a number of episodes of significant volatility when prices increased by more than 50% in few weeks. This shows that gas markets are still fragile and may have large reactions to any unexpected and sudden shock to supply and demand, as was the case following the strike in Australian LNG facilities, the Middle East crisis and the disruption of the Balticconnector. A number of risks can , if they materialise, fuel the fear of scarcity which, given the fragility of the market due to its tightness , may trigger large reactions with serious repercussions on prices . These risks include a rebound in Asian liquefied natural gas (LNG) demand that reduces the availability of gas on the global gas market, 3 extreme weather conditions potentially affecting hydropower storage or nuclear production 4 which would require higher recourse to gas-fired power generation, and further possible gas supply disruptions, including a complete halt of gas imports from Russia or a disruption of existing critical gas infrastructure. Armed conflicts of high intensity are now hitting several of the key EU supply regions, in addition to Ukraine (Azerbaijan, Middle East) and this is deteriorating the threat landscape. Recent examples illustrate the likelihood and relevance of the risks related to the disruption of critical gas infrastructure. In September 2022, the NordStream 1 pipeline was damaged by acts of sabotage to such a degree that it currently cannot transport any gas and will not be able to do so in the foreseeable future. In October 2023, the Balticconnector, an important pipeline connecting Finland to Estonia, was disrupted. As a result of the Balticconnector disruption, Finland is now no longer able to meet the N-1 criterion as part of the infrastructure standard defined in Article 5 of Regulation (EU) 2017/1938. The N-1 criterion ensures that Member States take measures so that in case of a disruption of the single largest gas infrastructure, they still have the technical capacity to satisfy their total demand during a peak day. As a result of the Balticconnector disruption, on 27 October 2023 Finland raised its crisis level pursuant to Article 11 of Regulation (EU) 2017/1938 from “early warning” to “alert”, which is the last crisis level before an emergency. This new infrastructure incident illustrates the likelihood and relevance of the risks related to new disruptions of critical gas infrastructure. It should be also noted that the significant reduction in demand for natural gas (-18% between August 2022 and August 2023) is contributing to preserve the gas balance in the EU. This reduction is a result of economic factors (e.g. high prices) and administrative measures adopted by Member States pursuant to Regulation 2022/1369 and its prolongation Regulation (EU) 2023/706 on coordinated gas demand reduction. A possible increase in demand, due to a rebound in the gas use in the residential, commercial and industrial sectors 5 or in case the administrative measures aimed at reducing demand were not prolonged further, represents an additional risk that, given the current tight market conditions, could undermine the EU’s security of gas supply. In a number of subsequent reports of December 2022, February, July and October 2023 , the International Energy Agency (IEA) has consistently been highlighting the lingering risks for the EU security of gas supply and warning against complacency in the light of the improvement of the situation compared to the peak of the crisis in summer 2022. According to the report of October 2023, “ global gas supply is set to remain tight in 2023 ” and “[b]elow-average LNG liquefaction capacity additions are expected to prolong tight supply conditions into 2024”. In its February report, the IEA noted that “ the global balance is subject to an unusually wide range of uncertainties and exogenous risk factors. This includes the possibility of complete cessation of Russian piped gas deliveries to the European Union, as well as a recovery of China’s LNG imports in line with the country’s long-term LNG contracts and a potential lower availability of LNG supply ”. It developed stress scenarios with a halt to Russian gas supplies, LNG supplies remaining tight and weather-related demand increases, which could result in a potential supply-demand gap of 40 bcm in the EU. In its report of July 2023, the IEA highlighted that “ risks and uncertainties remain ahead of the 2023/24 Northern Hemisphere winter ” and “ full storage sites are no guarantee against winter volatility and the risk of renewed market tensions ” . 5 In addition, the European Network of Transmission System Operators (ENTSOG) published its yearly Winter Supply Outlook with a summer overview, in line with Article 8 of Regulation (EC) 715/2009. ENTSOG concluded that although the general security of supply situation in the EU has significantly improved, additional measures may be needed in case of a full Russian supply disruption. In addition, careful management of the storages throughout the winter of 2023-2024 is needed, as a 46% filling level is likely needed at the beginning of the injection season to achieve the 90% storage target set out by Regulation (EU) 2022/1032. 3 The Union’s response under REPowerEU and following initiatives, including the measure set out in Regulation (EU) 2022/2578, contributed to improve the situation. Should the relevant Union measures cease to apply, this would risk altering the stabilised but fragile situation the Union has achieved and could deteriorate the EU resilience to unfavourable events. In light of these persisting severe difficulties and risks for the EU’s security of gas supply and gas prices, and not to alter the current fragile balance, it is necessary and urgent to prolong Regulation (EU) 2022/2578. Hence, this Proposal seeks to prolong by one year the period of application of Regulation 2022/2578. 1.1.3. Reasons for prolonging the Regulation’s provisions in the current situation The different provisions of Regulation (EU) 2022/2578, which the current proposal seeks to prolong, are necessary to address the above-mentioned severe difficulties and risks for the EU’s security of gas supply and gas prices. In March 2023, ACER and ESMA carried out an assessment of the MCM impact since its coming into force and concluded that the MCM has not been activated and no negative effects on energy (and financially-related) markets had arisen until that point in time. The Commission extended the analysis to assess the market developments in more recent months, and founded that the MCM has never been activated and identified no negative effects since the MCM Regulation entered into force. The MCM prevents prices to reach excessively high levels, compared to the international prices, on gas derivative markets, and therefore it limits the negative impact of high prices on the EU citizens’ purchasing power and the competitiveness of European businesses.
Revised version (Article 8 Effects assessment):
1. ESMA and ACER shall assess the effects of the MCM on financial and energy markets and on security of supply, notably to verify whether the key elements of the MCM are still appropriate in light of the developments as regards the financial and energy market and security of supply. 2. ESMA and ACER shall in the effects assessment in particular carry out an analysis concerning the criteria set out in Article 9(2). That assessment shall notably verify whether the limitation to TTF-derivatives led to arbitrage by market participants between corrected and non-corrected derivatives with negative impact on financial or energy markets, and to the detriment of consumers. 3. ESMA and ACER shall also assess whether: (a) the exclusion of over-the-counter (‘OTC’) trading from the scope of this Regulation led to significant shifts of TTF derivatives trading to OTC markets, endangering the stability of financial or energy markets; (b) the MCM led to a significant decrease in TTF derivatives transactions within the Union, or to a significant shift of TTF derivative transactions to trading venues outside the Union; 5. The reports from ESMA and ACER pursuant to paragraph 1 shall be submitted to the Commission by 1 March 2023. ESMA and ACER shall publish a preliminary data report concerning introduction of the MCM by 23 January 2023.
Article 9 Extension of the MCM to derivatives linked to other VTPs
1. On the basis of the assessment referred to in Article 8(1), , the Commission, shall by means of an implementing act, define the technical details of the application of the MCM to derivatives linked to other VTPs by 31 March 2023 in accordance with paragraph 2 of this Article. That implementing act shall be adopted in accordance with Article 11(2). In the event that the application of the MCM to derivatives linked to other VTPs leads to significant negative effects on financial or gas markets pursuant to the criteria set out in paragraph 2 of this Article, the Commission shall, exceptionally, exclude certain derivatives from the scope of application of the MCM. 2. The Commission shall select the technical details of the implementation, as well as those derivatives linked to other VTPs, which may have to be excluded from the scope of application of the MCM, in particular on the basis of the following criteria: (a) availability of information on the prices of derivatives linked to other VTPs; (b) the liquidity of the derivatives linked to other VTPs; (c) the impact of the extension of the MCM to derivatives linked to other VTPs would have on intra-Union flows of gas and security of supply; (d) the impact of the extension of the MCM to derivatives linked to other VTPs would have on the stability of financial markets, taking into account the impact on possible additional margins as collateral.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Since Russia’s unprovoked and unjustified full-scale invasion of Ukraine, supplies of gas to the EU by Russia have been disrupted as a deliberate attempt to use energy as a political weapon. Russia has been for many years the main gas supplier of the EU. Historically, the EU relied on Russia for more than 40% of its gas supplies. The supply of gas has continuously decreased since February 2022. The pipeline flows of gas from Russia was less than 10% of the EU’s gas imports in the first half of 2023. The supply shock caused by Russia had significant impacts on gas price level in the EU. While prices over the previous decade had moved within a band of EUR 5MWh to EUR 35MWh and averaged around EUR 20/MWh, gas prices spiked above EUR 300/MWh in August 2022 at the peak of the crisis and reached levels which were 1000% higher than the average prices seen before in the Union. The highest price levels were reached in one week - 5 consecutive trading days - from 22 to 26 August 2022, when the prices had been consistently above EUR 250/MWh and diverged from the LNG reference price by more than EUR 50/MWh. Since the peak of the crisis, prices have significantly fallen and ranged between EUR 40/MWh and EUR 50/MWh in early Autumn 2023. However, they remain more than twice as high as pre-crisis. Extreme price spikes are highly damaging for the European economy. Gas is widely used by many sectors in the EU economy from SMEs to large industry, in particular gas intensive industries such as ceramics, glass, fertilisers, pulp and paper and chemicals. Moreover, high prices have contagion effects on electricity prices and contribute to increase the overall inflation. Against this background, the Council adopted on 19 December 2022 the emergency Council Regulation (EU) 2022/2578 to establish a gas market correction mechanism (‘MCM’) to protect Union citizens and the economy against excessively high prices. The Regulation will cease to apply on 31 January 2024. This proposal seeks to prolong by one year the period of application of the provisions of Regulation (EU) 2022/2578 in view of the persisting risks for energy supplies, and therefore prices, in the Union. 1.1.1. The main elements of Regulation (EU) 2022/2578 Council Regulation (EU) 2022/2578 of 22 December 2022 sets up a temporary market correction mechanism (‘MCM’) for orders placed for trading derivatives linked to the EU’s virtual trading points (‘VTPs’) with maturities between month-ahead and year-ahead. The MCM is activated when a market correction event occurs, that is, when the front-month TTF derivative settlement price exceeds EUR 180/MWh and is EUR 35 higher than the reference price (reflecting global LNG price trends) for three working days. The MCM has not been activated so far as TTF prices have remained below the triggering thresholds since the entry into force of Council Regulation (EU) 2022/2578. Upon the occurrence of a market correction event, the MCM Regulation sets a dynamic bidding limit, according to which market operators should not accept and market participants should not submit orders for derivatives with prices of EUR 35/MWh above the reference price published by ACER on the previous day. The MCM is automatically deactivated after 20 working days if the dynamic bidding limit is at EUR 180/MWh for three consecutive days. Pursuant to Article 6 of the Regulation, the dynamic bidding limit can be suspended immediately and at any time if it leads to serious market disturbances, affecting the security of supply and intra-Union flows of gas or the proper functioning of the energy derivatives markets. 1.1.2. The current situation: severe difficulties and risks for the EU’s security of gas supply persist The Union’s response under REPowerEU and following initiatives, including the measures set out in Regulation (EU) 2022/2578, prepared the EU to a degraded security of gas supplies situation. If not prolonged, the Regulation will cease to apply on 31 January 2024. However, as of the date of adoption of this proposal, severe difficulties in gas supplies to the Union persist. Due to the significant decrease in Russian pipeline gas imports over the past year, availability of gas supplies to the Union is considerably reduced compared to pre-crisis. With the current pipeline gas import levels, the Union is expected to receive approximately 20 bcm of Russian pipeline imports in 2023, if these unreliable imports are not disrupted altogether. This would be approximately 110 bcm less than in 2021. Global gas markets remain very tight and are expected to remain as such for some time . As noted by the IEA, 1 global LNG supply grew only m odestly in 2022 (4%) and in 2023 (3%) because of “ limited liquefaction capacity additions, outages at major export facilities and declining feed gas supply at LNG plants fed by ageing fields ”. Significant new LNG liquefaction capacity globally (especially in the US and Qatar) is set to come online only as of 2025 but “ market balances remain precarious in the immediate future ” . 2 This situation is still having negative consequences on gas prices which, despite being much lower than the peak experienced in summer 2022, remain higher than pre-crisis with inevitable repercussions on the EU citizens’ purchasing power and the competitiveness of European businesses. Large market volatility is also a consequence of the market tightness and represents an additional risk for the EU economy. Summer and Autumn 2023 saw a number of episodes of significant volatility when prices increased by more than 50% in few weeks. This shows that gas markets are still fragile and may have large reactions to any unexpected and sudden shock to supply and demand, as was the case following the strike in Australian LNG facilities, the Middle East crisis and the disruption of the Balticconnector. A number of risks can , if they materialise, fuel the fear of scarcity which, given the fragility of the market due to its tightness , may trigger large reactions with serious repercussions on prices . These risks include a rebound in Asian liquefied natural gas (LNG) demand that reduces the availability of gas on the global gas market, 3 extreme weather conditions potentially affecting hydropower storage or nuclear production 4 which would require higher recourse to gas-fired power generation, and further possible gas supply disruptions, including a complete halt of gas imports from Russia or a disruption of existing critical gas infrastructure. Armed conflicts of high intensity are now hitting several of the key EU supply regions, in addition to Ukraine (Azerbaijan, Middle East) and this is deteriorating the threat landscape. Recent examples illustrate the likelihood and relevance of the risks related to the disruption of critical gas infrastructure. In September 2022, the NordStream 1 pipeline was damaged by acts of sabotage to such a degree that it currently cannot transport any gas and will not be able to do so in the foreseeable future. In October 2023, the Balticconnector, an important pipeline connecting Finland to Estonia, was disrupted. As a result of the Balticconnector disruption, Finland is now no longer able to meet the N-1 criterion as part of the infrastructure standard defined in Article 5 of Regulation (EU) 2017/1938. The N-1 criterion ensures that Member States take measures so that in case of a disruption of the single largest gas infrastructure, they still have the technical capacity to satisfy their total demand during a peak day. As a result of the Balticconnector disruption, on 27 October 2023 Finland raised its crisis level pursuant to Article 11 of Regulation (EU) 2017/1938 from “early warning” to “alert”, which is the last crisis level before an emergency. This new infrastructure incident illustrates the likelihood and relevance of the risks related to new disruptions of critical gas infrastructure. It should be also noted that the significant reduction in demand for natural gas (-18% between August 2022 and August 2023) is contributing to preserve the gas balance in the EU. This reduction is a result of economic factors (e.g. high prices) and administrative measures adopted by Member States pursuant to Regulation 2022/1369 and its prolongation Regulation (EU) 2023/706 on coordinated gas demand reduction. A possible increase in demand, due to a rebound in the gas use in the residential, commercial and industrial sectors 5 or in case the administrative measures aimed at reducing demand were not prolonged further, represents an additional risk that, given the current tight market conditions, could undermine the EU’s security of gas supply. In a number of subsequent reports of December 2022, February, July and October 2023 , the International Energy Agency (IEA) has consistently been highlighting the lingering risks for the EU security of gas supply and warning against complacency in the light of the improvement of the situation compared to the peak of the crisis in summer 2022. According to the report of October 2023, “ global gas supply is set to remain tight in 2023 ” and “[b]elow-average LNG liquefaction capacity additions are expected to prolong tight supply conditions into 2024”. In its February report, the IEA noted that “ the global balance is subject to an unusually wide range of uncertainties and exogenous risk factors. This includes the possibility of complete cessation of Russian piped gas deliveries to the European Union, as well as a recovery of China’s LNG imports in line with the country’s long-term LNG contracts and a potential lower availability of LNG supply ”. It developed stress scenarios with a halt to Russian gas supplies, LNG supplies remaining tight and weather-related demand increases, which could result in a potential supply-demand gap of 40 bcm in the EU. In its report of July 2023, the IEA highlighted that “ risks and uncertainties remain ahead of the 2023/24 Northern Hemisphere winter ” and “ full storage sites are no guarantee against winter volatility and the risk of renewed market tensions ” . 5 In addition, the European Network of Transmission System Operators (ENTSOG) published its yearly Winter Supply Outlook with a summer overview, in line with Article 8 of Regulation (EC) 715/2009. ENTSOG concluded that although the general security of supply situation in the EU has significantly improved, additional measures may be needed in case of a full Russian supply disruption. In addition, careful management of the storages throughout the winter of 2023-2024 is needed, as a 46% filling level is likely needed at the beginning of the injection season to achieve the 90% storage target set out by Regulation (EU) 2022/1032. 3 The Union’s response under REPowerEU and following initiatives, including the measure set out in Regulation (EU) 2022/2578, contributed to improve the situation. Should the relevant Union measures cease to apply, this would risk altering the stabilised but fragile situation the Union has achieved and could deteriorate the EU resilience to unfavourable events. In light of these persisting severe difficulties and risks for the EU’s security of gas supply and gas prices, and not to alter the current fragile balance, it is necessary and urgent to prolong Regulation (EU) 2022/2578. Hence, this Proposal seeks to prolong by one year the period of application of Regulation 2022/2578. 1.1.3. Reasons for prolonging the Regulation’s provisions in the current situation The different provisions of Regulation (EU) 2022/2578, which the current proposal seeks to prolong, are necessary to address the above-mentioned severe difficulties and risks for the EU’s security of gas supply and gas prices. In March 2023, ACER and ESMA carried out an assessment of the MCM impact since its coming into force and concluded that the MCM has not been activated and no negative effects on energy (and financially-related) markets had arisen until that point in time. The Commission extended the analysis to assess the market developments in more recent months, and founded that the MCM has never been activated and identified no negative effects since the MCM Regulation entered into force. The MCM prevents prices to reach excessively high levels, compared to the international prices, on gas derivative markets, and therefore it limits the negative impact of high prices on the EU citizens’ purchasing power and the competitiveness of European businesses.
Revised version (Article 9 Extension of the MCM to derivatives linked to other VTPs):
1. On the basis of the assessment referred to in Article 8(1), the Commission, shall by means of an implementing act, define the technical details of the application of the MCM to derivatives linked to other VTPs by 31 March 2023 in accordance with paragraph 2 of this Article. That implementing act shall be adopted in accordance with Article 11(2). In the event that the application of the MCM to derivatives linked to other VTPs leads to significant negative effects on financial or gas markets pursuant to the criteria set out in paragraph 2 of this Article, the Commission shall, exceptionally, exclude certain derivatives from the scope of application of the MCM.
Article 10 Review
The Commission may, where appropriate, propose an amendment to this Regulation to include derivatives traded OTC in the scope of this Regulation, or to review the elements taken into account for the reference price, notably considering giving different weight to those elements, the conditions for the activation of the MCM set out in Article 4(1), points (a) and (b), and the dynamic bidding limit. Before submitting such a proposal, the Commission shall consult the ECB, ESMA, ACER, ENTSOG and the GCG and, where appropriate, other relevant stakeholders.
Article 11 Committee procedure
1. The Commission shall be assisted by a committee. That committee shall be a committee within the meaning of Regulation (EU) No 182/2011. 2. Where reference is made to this paragraph, Article 5 of Regulation (EU) No 182/2011 shall apply.
Article 12 Entry into force
1. This Regulation shall enter into force on 1 February 2023. It shall apply from the same day for a period of one year. 2. Article 4 shall apply from 15 February 2023. 3. Article 8(2) shall apply from 1 January 2023. 4. This Regulation shall not apply to the following: (a) TTF derivative contracts concluded before 1 February 2023; (b) buying and selling of TTF derivatives in order to offset or reduce TTF derivatives contracts concluded before 1 February 2023; (c) buying and selling of TTF derivatives as part of a CCP default management procedure, including OTC trades registered in the regulated market for clearing purposes.
Amendment rationale: CONTEXT OF THE PROPOSAL 1.1. Reasons for and objectives of the proposal Since Russia’s unprovoked and unjustified full-scale invasion of Ukraine, supplies of gas to the EU by Russia have been disrupted as a deliberate attempt to use energy as a political weapon. Russia has been for many years the main gas supplier of the EU. Historically, the EU relied on Russia for more than 40% of its gas supplies. The supply of gas has continuously decreased since February 2022. The pipeline flows of gas from Russia was less than 10% of the EU’s gas imports in the first half of 2023. The supply shock caused by Russia had significant impacts on gas price level in the EU. While prices over the previous decade had moved within a band of EUR 5MWh to EUR 35MWh and averaged around EUR 20/MWh, gas prices spiked above EUR 300/MWh in August 2022 at the peak of the crisis and reached levels which were 1000% higher than the average prices seen before in the Union. The highest price levels were reached in one week - 5 consecutive trading days - from 22 to 26 August 2022, when the prices had been consistently above EUR 250/MWh and diverged from the LNG reference price by more than EUR 50/MWh. Since the peak of the crisis, prices have significantly fallen and ranged between EUR 40/MWh and EUR 50/MWh in early Autumn 2023. However, they remain more than twice as high as pre-crisis. Extreme price spikes are highly damaging for the European economy. Gas is widely used by many sectors in the EU economy from SMEs to large industry, in particular gas intensive industries such as ceramics, glass, fertilisers, pulp and paper and chemicals. Moreover, high prices have contagion effects on electricity prices and contribute to increase the overall inflation. Against this background, the Council adopted on 19 December 2022 the emergency Council Regulation (EU) 2022/2578 to establish a gas market correction mechanism (‘MCM’) to protect Union citizens and the economy against excessively high prices. The Regulation will cease to apply on 31 January 2024. This proposal seeks to prolong by one year the period of application of the provisions of Regulation (EU) 2022/2578 in view of the persisting risks for energy supplies, and therefore prices, in the Union. 1.1.1. The main elements of Regulation (EU) 2022/2578 Council Regulation (EU) 2022/2578 of 22 December 2022 sets up a temporary market correction mechanism (‘MCM’) for orders placed for trading derivatives linked to the EU’s virtual trading points (‘VTPs’) with maturities between month-ahead and year-ahead. The MCM is activated when a market correction event occurs, that is, when the front-month TTF derivative settlement price exceeds EUR 180/MWh and is EUR 35 higher than the reference price (reflecting global LNG price trends) for three working days. The MCM has not been activated so far as TTF prices have remained below the triggering thresholds since the entry into force of Council Regulation (EU) 2022/2578. Upon the occurrence of a market correction event, the MCM Regulation sets a dynamic bidding limit, according to which market operators should not accept and market participants should not submit orders for derivatives with prices of EUR 35/MWh above the reference price published by ACER on the previous day. The MCM is automatically deactivated after 20 working days if the dynamic bidding limit is at EUR 180/MWh for three consecutive days. Pursuant to Article 6 of the Regulation, the dynamic bidding limit can be suspended immediately and at any time if it leads to serious market disturbances, affecting the security of supply and intra-Union flows of gas or the proper functioning of the energy derivatives markets. 1.1.2. The current situation: severe difficulties and risks for the EU’s security of gas supply persist The Union’s response under REPowerEU and following initiatives, including the measures set out in Regulation (EU) 2022/2578, prepared the EU to a degraded security of gas supplies situation. If not prolonged, the Regulation will cease to apply on 31 January 2024. However, as of the date of adoption of this proposal, severe difficulties in gas supplies to the Union persist. Due to the significant decrease in Russian pipeline gas imports over the past year, availability of gas supplies to the Union is considerably reduced compared to pre-crisis. With the current pipeline gas import levels, the Union is expected to receive approximately 20 bcm of Russian pipeline imports in 2023, if these unreliable imports are not disrupted altogether. This would be approximately 110 bcm less than in 2021. Global gas markets remain very tight and are expected to remain as such for some time . As noted by the IEA, 1 global LNG supply grew only m odestly in 2022 (4%) and in 2023 (3%) because of “ limited liquefaction capacity additions, outages at major export facilities and declining feed gas supply at LNG plants fed by ageing fields ”. Significant new LNG liquefaction capacity globally (especially in the US and Qatar) is set to come online only as of 2025 but “ market balances remain precarious in the immediate future ” . 2 This situation is still having negative consequences on gas prices which, despite being much lower than the peak experienced in summer 2022, remain higher than pre-crisis with inevitable repercussions on the EU citizens’ purchasing power and the competitiveness of European businesses. Large market volatility is also a consequence of the market tightness and represents an additional risk for the EU economy. Summer and Autumn 2023 saw a number of episodes of significant volatility when prices increased by more than 50% in few weeks. This shows that gas markets are still fragile and may have large reactions to any unexpected and sudden shock to supply and demand, as was the case following the strike in Australian LNG facilities, the Middle East crisis and the disruption of the Balticconnector. A number of risks can , if they materialise, fuel the fear of scarcity which, given the fragility of the market due to its tightness , may trigger large reactions with serious repercussions on prices . These risks include a rebound in Asian liquefied natural gas (LNG) demand that reduces the availability of gas on the global gas market, 3 extreme weather conditions potentially affecting hydropower storage or nuclear production 4 which would require higher recourse to gas-fired power generation, and further possible gas supply disruptions, including a complete halt of gas imports from Russia or a disruption of existing critical gas infrastructure. Armed conflicts of high intensity are now hitting several of the key EU supply regions, in addition to Ukraine (Azerbaijan, Middle East) and this is deteriorating the threat landscape. Recent examples illustrate the likelihood and relevance of the risks related to the disruption of critical gas infrastructure. In September 2022, the NordStream 1 pipeline was damaged by acts of sabotage to such a degree that it currently cannot transport any gas and will not be able to do so in the foreseeable future. In October 2023, the Balticconnector, an important pipeline connecting Finland to Estonia, was disrupted. As a result of the Balticconnector disruption, Finland is now no longer able to meet the N-1 criterion as part of the infrastructure standard defined in Article 5 of Regulation (EU) 2017/1938. The N-1 criterion ensures that Member States take measures so that in case of a disruption of the single largest gas infrastructure, they still have the technical capacity to satisfy their total demand during a peak day. As a result of the Balticconnector disruption, on 27 October 2023 Finland raised its crisis level pursuant to Article 11 of Regulation (EU) 2017/1938 from “early warning” to “alert”, which is the last crisis level before an emergency. This new infrastructure incident illustrates the likelihood and relevance of the risks related to new disruptions of critical gas infrastructure. It should be also noted that the significant reduction in demand for natural gas (-18% between August 2022 and August 2023) is contributing to preserve the gas balance in the EU. This reduction is a result of economic factors (e.g. high prices) and administrative measures adopted by Member States pursuant to Regulation 2022/1369 and its prolongation Regulation (EU) 2023/706 on coordinated gas demand reduction. A possible increase in demand, due to a rebound in the gas use in the residential, commercial and industrial sectors 5 or in case the administrative measures aimed at reducing demand were not prolonged further, represents an additional risk that, given the current tight market conditions, could undermine the EU’s security of gas supply. In a number of subsequent reports of December 2022, February, July and October 2023 , the International Energy Agency (IEA) has consistently been highlighting the lingering risks for the EU security of gas supply and warning against complacency in the light of the improvement of the situation compared to the peak of the crisis in summer 2022. According to the report of October 2023, “ global gas supply is set to remain tight in 2023 ” and “[b]elow-average LNG liquefaction capacity additions are expected to prolong tight supply conditions into 2024”. In its February report, the IEA noted that “ the global balance is subject to an unusually wide range of uncertainties and exogenous risk factors. This includes the possibility of complete cessation of Russian piped gas deliveries to the European Union, as well as a recovery of China’s LNG imports in line with the country’s long-term LNG contracts and a potential lower availability of LNG supply ”. It developed stress scenarios with a halt to Russian gas supplies, LNG supplies remaining tight and weather-related demand increases, which could result in a potential supply-demand gap of 40 bcm in the EU. In its report of July 2023, the IEA highlighted that “ risks and uncertainties remain ahead of the 2023/24 Northern Hemisphere winter ” and “ full storage sites are no guarantee against winter volatility and the risk of renewed market tensions ” . 5 In addition, the European Network of Transmission System Operators (ENTSOG) published its yearly Winter Supply Outlook with a summer overview, in line with Article 8 of Regulation (EC) 715/2009. ENTSOG concluded that although the general security of supply situation in the EU has significantly improved, additional measures may be needed in case of a full Russian supply disruption. In addition, careful management of the storages throughout the winter of 2023-2024 is needed, as a 46% filling level is likely needed at the beginning of the injection season to achieve the 90% storage target set out by Regulation (EU) 2022/1032. 3 The Union’s response under REPowerEU and following initiatives, including the measure set out in Regulation (EU) 2022/2578, contributed to improve the situation. Should the relevant Union measures cease to apply, this would risk altering the stabilised but fragile situation the Union has achieved and could deteriorate the EU resilience to unfavourable events. In light of these persisting severe difficulties and risks for the EU’s security of gas supply and gas prices, and not to alter the current fragile balance, it is necessary and urgent to prolong Regulation (EU) 2022/2578. Hence, this Proposal seeks to prolong by one year the period of application of Regulation 2022/2578. 1.1.3. Reasons for prolonging the Regulation’s provisions in the current situation The different provisions of Regulation (EU) 2022/2578, which the current proposal seeks to prolong, are necessary to address the above-mentioned severe difficulties and risks for the EU’s security of gas supply and gas prices. In March 2023, ACER and ESMA carried out an assessment of the MCM impact since its coming into force and concluded that the MCM has not been activated and no negative effects on energy (and financially-related) markets had arisen until that point in time. The Commission extended the analysis to assess the market developments in more recent months, and founded that the MCM has never been activated and identified no negative effects since the MCM Regulation entered into force. The MCM prevents prices to reach excessively high levels, compared to the international prices, on gas derivative markets, and therefore it limits the negative impact of high prices on the EU citizens’ purchasing power and the competitiveness of European businesses.
Revised version (Article 12 Entry into force):
1. This Regulation shall enter into force on 1 February 2023. It shall apply until 31 January 2025. 2. Article 4 shall apply from 15 February 2023. 3. Article 8(2) shall apply from 1 January 2023.