The Government announced this Thursday that it is “evaluating” with the European Commission the continuity of the Iberian mechanism that limits the price of gas used in the production of electricity in Portugal and Spain, taking into account the most recent proposal from Brussels for the creation of a new instrument for all Member States. This is a sort of “emergency brake” on natural gas prices traded on the Dutch TTF index for the following month, which will be set at 275 euros per MWh.
“This proposal is not suitable for Portugal. We made our arguments clear and made suggestions for improvements, as other countries have done”, said the Secretary of State for the Environment and Energy, João Galamba, who spoke to journalists at the end of a meeting extraordinary session of European ministers in Brussels.
This temporary cap, which will act as a “mechanism of last resort”, will only be used if futures contracts on the Dutch TTF index exceed 275 euros per MWh for two weeks and the difference between this price and that of liquefied natural gas is greater than 58 euros for more than 10 days. Energy Commissioner Kadri Simson explained that the mechanism was designed for “extreme situations”. However, in the Government’s view, the new EU proposal to limit gas prices “does not work for Portugal” as outlined. Galamba hopes that Brussels opts, yes, for the maintenance of the Iberian mechanism that is in force.
“We are still evaluating. The Iberian mechanism was approved for two reasons, because there was no European mechanism and because the Iberian Peninsula was an energy island and had weak interconnections. As the context has changed, obviously we have to update our arguments in the face of the new context”, said Galamba, stressing that the Government “likes the Iberian mechanism” and considers that “it works and fulfills its objectives”.
“Therefore, everything indicates that it will continue, but that decision has not yet been taken”, said the Secretary of State for the Environment and Energy. At issue is the temporary Iberian mechanism in force since mid-June to place limits on the average price of gas in electricity production, which in the case of Portugal and Spain is around 60 euros per Megawatt-hour.
João Galamba’s position was transmitted on the day that EU Energy ministers discussed the creation of a market correction mechanism aimed at limiting excessive peaks in gas prices, presented this week by the community executive and which has already generated criticism among the 27.
The community executive wants to move forward with this temporary mechanism to limit prices in the TTF while working on a new complementary reference index, which it will present in early 2023 to include real conditions in the European market, such as the use of LNG.
“This proposal is not suitable for Portugal. We made our arguments clear and made suggestions for improvements, as other countries have done. when compared to other indices, namely liquefied natural gas [GNL]and another issue at the level of gas prices”, added Galamba
“The dysfunctionality in the TTF index [a principal bolsa europeia de gás natural]when compared to other indices, should not make reference to absolute price values because market dysfunctionality can either exist with low, medium or high prices and, therefore, Portugal’s position is that we should separate the themes”, concluded the secretary of State.
Regarding the next extraordinary Energy Council, scheduled for mid-December, João Galamba defended the need to “continue working on a proposal” until the 13th, given the still “quite divergent” positions between the countries.
European energy ministers reached an informal agreement this Tuesday on joint gas purchases and strengthening solidarity, but will still have to formally approve it in an extraordinary Council in December, along with the maximum ceiling on the TTF index.