EU launches new reference price setting application for LNG

The power agency of the European Union (EU) has launched a new price setting application for liquefied natural gas (LNG) that takes global levels as a reference, within the scope of the natural gas ceiling price initiative.

EU Power Regulators Cooperation Agency (ACER) has published the daily reference LNG price for the first time within the framework of the “gas market correction mechanism”, known as the ceiling price application for natural gas, which will come into effect on February 15.

ACER’s first LNG reference price on February 1 was 55.21 euros per megawatt-hour. One day, the price level at TTF, the Netherlands-based virtual natural gas trading point with the deepest depth in Europe, closed at 59.5 euros. The difference between the two prices was about 4 euro.

ACER will publish a new reference price every weekday from now on.

The reference price under the market correction system is calculated based on the average of LNG prices of different institutions and the settlement price in the derivatives markets.

North West Europe, Mediterranean, North East Asia, derivative clearing and ACER LNG price valuation report are used to determine the price.

ACER relies on the euro exchange rates of the European Central Bank for its currency conversion process.

Ceiling price application

EU countries agreed in December that a correction system known as the “ceiling price” in gas prices in the markets would come into effect on February 15th.

The ceiling price will come into effect if the future gas contract, which is processed at the virtual natural gas trading point TTF, exceeds 180 euros for 3 working days and the megawatt-hour price of liquefied natural gas in Europe exceeds 35 euros in the global markets.

The new reference price in question will be used to determine the difference with the price level in the global markets.

On the other hand, the gas futures contract price, which is under process in the TTF, reached 340 euros per megawatt-hour in August. The price in question is 57.2 euros today.

EU needs to reduce gas consumption to get through next winter

It was mentioned that the European Union (EU) should continue to take measures to reduce natural gas consumption in order to survive the next winter period.

Brussels-based think tank Bruegel’s work titled “Europe 2023 Gas Outlook” has been published.

According to the study, the possibility of a power crisis in the EU this winter period has decreased due to the emergency measures implemented last year and the warm winter months.

According to the study, which states that the outlook for the next winter is not clear now, it is predicted that the EU may have to fill the gas tanks for the next winter, reduce consumption and compete with China in LNG supply.

In this context, especially gas storage facilities must be 90 percent full by October 1, 2023.

In order not to experience a power crisis next winter, it is necessary for the EU to extend the deadline for the decision to reduce demand for gas, which will expire on March 31, 2023, and to reduce the demand for gas in order to fill the warehouses.

Next winter, the EU should reduce its gas demand by 13 percent if the natural gas flow from Russia through the pipe borders continues at current levels and temperatures stay at seasonal normals.

It is predicted that if the natural gas supplied from Russia through pipelines is completely cut off and the winter is cold, more drastic measures will be required, in which case the EU may have to reduce its gas demand by 26 percent in order to survive the winter period.

On the other hand, the deadline for the implementation of the EU’s decision to reduce the natural gas demand by 15 percent ends next month. Member states are expected to extend this period.

At the end of the EU’s winter period, the occupancy of gas tanks is expected to be higher than last year. Currently, gas tanks are at approximately 73 percent fill level. The EU will also start to conclude joint natural gas purchase contracts this year.