The European Union is considering ways to reduce Russia's influence on the European gas market. The EU authorities are assessing the consequences of abandoning the usual pricing in the local market, as well as introducing a link to the Asian gas markets, where such high volatility in fuel prices is not currently recorded. This was reported by Bloomberg, citing sources close to the European Commission and familiar with the discussions.
The authorities are also discussing the introduction of marginal gas prices within the European market. According to the agency, the European Commission is seriously considering the possibility of intervention in the European gas market in order to reduce price pressure and discourage speculators from cashing in on the deficit. As one of the measures, the European Commission proposes to abandon the electronic market and the generally recognized exchange benchmark (benchmark) - we are talking about pricing at the main European gas hub in the Netherlands, according to the mechanism for transferring ownership rights (Dutch Title Transfer Facility, TTF).
For some time, the European Commission wants to abandon the market mechanism in favor of directive pricing through financial oversight. Authorities are concerned that the TTF has ceased to be a credible benchmark for long-term contracts due to speculators driving up gas prices amid unstable liquefied natural gas (LNG) supplies.
“The price premium between the TTF and the European Ship LNG Supply Index has increased significantly, raising questions about its representativeness as an index for linking contracts throughout the EU,” the agency quoted from a document that will be discussed at a meeting of representatives of all EU members on Friday. .
The EU authorities call the creation of a separate trading platform for LNG supplies one of the options for solving the problem. They believe that a separate exchange could reduce the pressure on the gas market of speculators who are taking advantage of the difficult situation caused by the collapse in gas supplies from Russia. Another option that the authorities are considering in the event of supply disruptions is directive binding of TTF to the Asian market using the JKM (Japan/Korea marker), which determines the cost of LNG. Linking to Asia would help to level the "bottlenecks" of the European market and make the Asian LNG market temporarily global.
In addition to reducing the consequences for the European gas market, the EU hopes that such measures will additionally hit Russia's gas revenues. The introduction of the price ceiling mechanism should create such conditions that if Russia refuses to supply gas, it would “feel worse” than if supplies were maintained, but within the framework of European restrictions, one of the agency’s sources notes.
The European energy market in 2022 faced record pressure due to the collapse in gas supplies from Russia. Fuel prices rose to multi-year highs, which further accelerated electricity and heating prices. European businesses and households are forced to switch to austerity, some enterprises have already closed or reduced production due to unprofitability. As part of preparations for the heating season, the EU has already fulfilled the directive to fill gas storage facilities by 85%. The Russian side claims that it will not increase gas supplies to Europe until Europe lifts sanctions.