On Tuesday, 22 November 2022, the European Commission (the Commission) adopted a proposal for a Council Regulation establishing a market correction mechanism to protect citizens and the economy against excessively high prices. The proposal sets out the details for a temporary market correction mechanism to cap the price of front-month Title Transfer Facility (TTF) derivatives in case of significant price increases. It complements the Commission’s proposal for a Council Regulation on enhancing solidarity through better coordination of gas purchases, exchanges of gas across borders and reliable price benchmarks that was published on 18 October 2022 and is currently under review by Member States.

In accordance with the most recent Commission proposal, the correction mechanism could be activated as of 1 January 2023. It would be triggered if the conditions for a “‘market correction event” are met, which include:

1. the front-month TTF derivative settlement price exceeds €275 for 2 weeks; and
2. the TTF European Gas Spot Index is €58 higher than reference global prices during the previous 10 trading days.

If the market event conditions are fulfilled, the European Agency for Cooperation of Energy Regulators (ACER) will automatically trigger a mechanism whereby a “market correction notice” will be published in the EU Official Journal. Once triggered, the mechanism will ensure that orders for front-month TTF derivatives exceeding €275 will be subject to a bidding limit, i.e. they will not be accepted. ACER will be responsible for monitoring and reporting daily to the Commission if the conditions for triggering the mechanism persist. It will publish a “deactivation notice” if the triggering conditions are no longer met during 10 consecutive trading days. The Commission will also be able to suspend the mechanism at any time if it leads to unintended market disturbances, especially affecting security of supply, intra-EU gas flows or financial stability. The mechanism is set to initially apply for one year. The Commission will be mandated to review the mechanism by 1 November 2023 and, if required, propose an extension.

By means of background, the Commission’s proposals for a Council Regulation dated 18 October 2022 sets out provisions for, among others the:

1. establishment of measures enabling EU Member States to jointly purchase gas;
2. introduction of a complementary benchmark on liquefied natural gas (LNG); and
3. introduction of an intra-day price volatility management mechanism for energy exchanges (“circuit breaker”).

Next steps: both proposals for Council Regulations will be discussed by EU Member States’ energy ministers during the Energy Council meeting taking place on 24 November 2022.