Why will the gas cap not be applied this Thursday for the first time since it was created?

On June 15, the so-called 'Iberian mechanism' came into force, a measure whose function is to limit the price of gas for electricity production in Spain and Portugal, and thus deal with the energy crisis.

Thomas Osborne
Thomas Osborne
19 October 2022 Wednesday 13:40
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Why will the gas cap not be applied this Thursday for the first time since it was created?

On June 15, the so-called 'Iberian mechanism' came into force, a measure whose function is to limit the price of gas for electricity production in Spain and Portugal, and thus deal with the energy crisis.

Since then, this mechanism has been applied uninterruptedly and several European countries have also shown their willingness to implement it or, at least, to ask the EU to propose a cap on the price of gas, although Brussels does not seem to be up to the task, for now

However, this Thursday, October 20, something unheard of until now will happen.

For the first time since June 15, the so-called 'Iberian mechanism' (or 'Iberian exception') will not apply in Spain and Portugal. The reason? The pronounced reduction in the price of natural gas in the Iberian market.

Specifically, the price of natural gas for this Thursday has fallen below 40 euros per megawatt/hour (MWh) in the Iberian Gas Market (Mibgas), precisely the maximum price that the Government established that it must pay for that matter premium to generate electricity until the end of the year. Therefore, since it is less than 40 euros per megawatt/hour, this cap will not apply to gas.

The reference price set by the Iberian Gas Market (Mibgas) for this Thursday is 31.8 euros/MWh, its lowest level since the 'Iberian mechanism' came into force. If we compare it with last August 31, when a record gas price of 230.4 euros/MWh was set, tomorrow's price will be 86% lower than that figure.

This Wednesday, the Third Vice President of the Government and Minister for the Ecological Transition, Teresa Ribera, explained that the "important" reduction in natural gas prices is due to the fact that the gas stores are full, after the European Union (EU) requested its members to raise their reserves to 80% for fear that Moscow will cut off supplies.

For example, according to the Gas Infrastructure Europe (GIE) sectoral association, which brings together the main European operators in the sector, natural gas reserves in Spain alone are around 93%.