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ESMA: Capping the price of natural gas affects the exchanges

23 January 2023

The EU’s decision to cap the price of natural gas could affect financial stability and potentially reduce liquidity on European gas exchanges, the European Securities and Markets Authority (ESMA) warned in a document seen by Reuters.

In December, European energy ministers agreed that the gas price cap would be triggered when quotes at the Dutch Title Transfer Facility (TTF) gas hub in Amsterdam significantly exceed liquefied natural gas (LNG) prices. The ceiling could be triggered starting from February 15, 2023 and, initially, it will not apply to “over the counter” type transactions (outside the market).

In the document published on Monday, the European Securities and Markets Authority claims that if the price of natural gas approaches the level at which the cap is triggered, the operators present on the market will probably change their behavior, in order to avoid the imposition of the cap or to prepare for the application of the ceiling, according to Agerpres.

“Although this behavior would appear rational on an individual basis, it could lead to significant and abrupt changes in the evolution of the market, which would affect the orderly functioning of the market and, ultimately, financial stability,” warns ESMA.

The institution appreciates the full impact of the price cap will only become clear when it is close to being triggered.

ESMA and the Agency for the Cooperation of Energy Regulatory Authorities (ACER) must publish by March a comprehensive report on the consequences of capping the price of natural gas on the energy and financial markets.

At the TTF hub in Amsterdam, natural gas quotations for delivery in the next month fell, on Monday morning, by 0.2%, to 66.80 euros for a Megawatt-hour, after having previously registered an advance of 3.9%. On Friday, natural gas quotations rose by 10%, the first weekly increase after five consecutive weekly declines.

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