Sep 7, 2022
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Europe without Russian gas: the EU hit the “ceiling” and is absolutely dumb

Europe without Russian gas: the EU hit the "ceiling" and is absolutely dumb

Photo: ZumaTASS

The decision of some countries to impose price restrictions on Russian energy carriers is “absolutely stupid”, it will not lead to anything good for its initiators. So the President of Russia Vladimir Putin praised the initiative of the European Commission to set a ceiling price for gas from Russia during his speech at the Eastern Economic Forum on 7 September.

“There are contractual obligations, supply contracts. And what, will some decisions of a political nature be made that contradict the contracts? Yes, we simply will not fulfill them. And we will not supply at all if it contradicts our interests, in this case, economic ones. We will not supply gas, nor oil, nor coal, nor fuel oil – we will not supply anything,” the head of state said.

In this case, the West will have several options: either subsidize high prices, which is bad, as it will not change consumer behavior, or reduce consumption, which is economically feasible, but dangerous from a social point of view, the president said. Stressing that Russia will fulfill its contractual obligations.

The European Union, we recall, following the “ceiling” of prices for Russian oil, decided to introduce marginal prices for the supply of Russian gas. As planned by European officials, the cost should be 50 euros per MWh, which, according to Politico, citing European Commission documents, is “less than a fifth of the current spot price” – 220 euros per MWh.

At the same time, the EC warns that such a step could be risky, and EU countries should be ready to immediately abandon Russian gas if Moscow stops all supplies in response.

So far, as the newspaper notes, only France is ready to support the establishment of a cap on gas from Russia. Germany and Spain have not yet expressed themselves unambiguously on this score. Berlin first wants to set up a national expert commission to study the “smartest approach” to capping gas prices.

In Brussels, according to Bloomberg, they propose to discuss two options. The first is to impose, as in the case of oil, a price ceiling on all gas imported from Russia. The second is the division of states into “red” and “green” zones. The “red” will include countries with an increased risk of supply disruptions – where prices may be limited. The greens don’t. But in the event of interruptions in supplies, they will provide gas to the “red zone”.

In the European Commission, first of all, they want to ensure that “Russia feels worse when gas supplies are cut off than when the price limit is observed.”

Meanwhile, a well-known Russian political scientist Konstantin Dvinsky I am sure that we do not need to seriously consider either the first or the second option.

“In any case, Gazprom will stop deliveries to the EU countries. Then Europe in the annual volume will lose another 30-35 billion cubic meters of gas, which will have nothing to replace, ”he wrote in his Telegram channel.

The plans of the Brussels bureaucracy to introduce cap prices for Russian gas, the expert considers crazier than their own ideas with a ceiling on oil prices.

“If the world oil market is diversified and Europe will not be left without a physical volume, although it will buy“ black gold ”at 30-50% more expensive, then there is nothing to replace the supply of Russian gas in physical volume. Even now, when Gazprom’s exports to the EU have decreased by 4.5 times (from about 400 million cubic meters per day to 80–90 million cubic meters), the EU is forced to reduce consumption by 29 billion cubic meters in 8 months and pay for gas at 2,500— $3,000,” Dvinsky recalled.

The result of all this: inflation, massive deindustrialization, the retirement of entire industries (aluminum, fertilizers etc.), the devaluation of the euro and, most importantly, a complete lack of understanding of when all this will end.

“Somewhere, where, but it would certainly not be worth climbing into gas supplies to Brussels. This is a real crossbow that will finally ruin the European economy. I don’t even write about industry anymore, with its degradation it’s already clear, ”the expert sums up.

According to Stanislav Mitrakhovich, Leading Analyst of the National Energy Security Fund and the Financial University under the Government of the Russian FederationRussia will not cooperate with countries that have set a price ceiling for Russian energy resources:

– This is also our Deputy Prime Minister Alexander Novak said, and now President Putin has said it in plain text in Vladivostok.

It is one thing to supply something at a discount that is the result of commercial agreements. It is another matter to obey state regulation at the international level, when some countries begin to dictate terms to us. Russia will definitely not agree with this option, and deliveries will simply be stopped.

They are already at the level of about a quarter of what Russia supplied to the EU in early September 2021. But if a maximum price level limit is introduced – the so-called price caps – then everything will simply stop.

But in Europe, apparently, they believe that Russia itself can stop gas supplies in the coming weeks or months, so they expect us to be ahead of them. How this will help them, it is difficult to say. But the fact that this will cause a further progression of the crisis with deindustrialization and other challenges in the EU countries is certain.

And for Russia, this will be a challenge in terms of where to attach gas that does not go into the pipe. It will be necessary to build a pipeline to China. There are many questions: how long will it take to build LNG plants, convert our large-capacity tankers to medium-capacity ones, what volumes of gas can we spend on the domestic market, how much will be required for gas motor fuel etc.

Again, will we be able to create new chemical, metallurgical and other energy-intensive enterprises in the country.

“SP”: – So we are ready to supply the Europeans with cheap pipeline gas, which the president confirmed. But they themselves, apparently, do not want this, otherwise they did not block Nord Stream 2 …

— For several years now (in recent months it has just accelerated) European politicians have been saying that they want to say goodbye to Russian gas and will soon stop buying it from us. They also created mechanisms that interfere with the normal operation of pipelines.

Russia hears these words, and, of course, cannot but react: “Well, if you want it so, let your dreams become a reality.”

There is such an expression, be afraid of your desires, they can be fulfilled. This is about the same as what we are seeing now.

“SP”: – In the European Union, they pin their hopes on American liquefied gas, but will it be enough for everyone?

– If we talk about the long term, then, of course, there is a lot of gas in the world. And if you don’t Greta Thunbergwhich refers to gas as some kind of demonic resource, but for you it is a normal natural resource, then please give money, develop deposits, build gas receiving terminals. Somewhere in five years, gas will be enough.

But this does not solve the problem of a specific, coming winter.

Now in America there will be a new investment cycle, money will be invested in new projects. But they will not be built overnight. Again, all the plants put into operation were built for the predicted growth in market demand – there was no task to replace Russia.

And now American LNG will not save Europe in any way. Although supplies of American liquefied natural gas have naturally increased, they cannot compensate for supplies from Russia.

In five to seven years, American, Qatari LNG will be in Europe – there are no questions here. But this is not today’s issue.

“SP”: – The authorities of European countries claim that underground storage facilities are full, which means that there will be enough gas to survive the winter. But the people somehow do not really believe and begin to rebel. In your opinion, does a social explosion threaten Europe on this basis?

– It depends on many variables. Underground storage provides about a fifth of the total annual gas consumption. This is not a bag of potatoes that you stock up and then take out and eat in the winter. In the case of gas, it is necessary that there are constant supplies. And the amount that is not enough, you already additionally take from UGS facilities.

That is, underground storage facilities are an addition to regular supplies, they do not work instead of supplies.

As for the protests, there are 70 thousand dissatisfied in Prague, this is serious, of course. Prague is not as big a city as Moscow, New York or Paris. It’s as if we had three hundred thousand.

But what happens next will depend on a variety of circumstances. Whether Russian deliveries will continue or not, for example. How much will this gas cost? What will be the volume of industry decline and unemployment rate.

What will the weather be like in the end? Cold winter is one scenario. Warm is different. Last New Year’s Eve the temperature in Paris was +14 degrees. And it would be -5 the situation would be different.

But no one knows what the weather will be like. Again, windy or windless. There will be winds – wind turbines will work, there will be calm – they will not.

There was a time when there was no gas or electricity in Europe at all. But, really, the matter is in the psychological readiness of the population to return to this practice.

Germany, as some experts predict, may fall in development to the level of Spain. The German energy-intensive industry will close, and will migrate to other countries – to China, America or Turkey.

Of course, Spain is not a state in which one cannot live. But this is no longer a leader – neither economic, nor technological, nor political. If the elites and people of Germany are ready for this, then the flag is in their hands. But there is still time to change your mind.

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