On September 9, European energy ministers failed to agree on the introduction of a price ceiling for Russian gas. For this, according to the Italian minister Roberto Cingolanionly 3 out of 27 EU countries voted. At the same time, 15 countries out of 27 agree to the introduction of a ceiling for gas from all supplying countries – except for Russia, these are Norway, Algeria, Qatar, the USA and other countries. The European Commission has been instructed to prepare ideas for “lowering prices for all gas,” Western publications report.
Even before the meeting, Belgium spoke out against limiting prices only for Russian gas. As the Minister of Energy of the country said Tinne Van der Streten, this is a “purely political decision”, and if we introduce a price ceiling, then for all gas, and not just Russian. This idea, according to media reports, was supported by a number of countries, such as Italy, Poland and Greece.
According to Van der Streten, such a general restriction should be implemented “dynamically” in order for traders to continue selling gas to Europe. For example, if Europe sets a price cap for gas 5% higher than Asia, “all traders in the world will still continue to sell to Europe, because they will still receive a more attractive price than in Asia.”
Recall that on September 7, the European Commission (EC) reported that they would propose to the EU countries to impose a price cap on Russian gas as one of the measures to combat the energy crisis. According to Politico, the EC wants to set a ceiling of €50 per MWh, although it considers such a measure risky, as Russia could simply refuse to sell gas at that price and cut off supplies. In fact, he said it directly Vladimir Putinspeaking at the Eastern Economic Forum.
As the Financial Times wrote, at least ten EU countries object to the idea of imposing a “ceiling” on Russian gas prices, fearing a Russian reaction. At the same time, if a restriction is introduced on all gas supplies in principle, this may not cause such rejection of Moscow.
In addition, it will be easier from a technical point of view to make a decision on a gas price ceiling for everyone. As the FT explains, the introduction of a gas price limit in the Russian Federation will require the consent of all 27 EU member states, since such a measure is in fact sanctions from the EU. However, only a majority of votes will be sufficient to accept a proposal to limit gas prices from any supplier. At the same time, Hungary, Austria and the Netherlands and a number of other countries have previously raised objections to the price ceiling for all gas imports.
Leading Analyst of the National Energy Security Fund, expert of the Financial University under the Government of the Russian Federation Igor Yushkov said that an attempt to introduce a ceiling on prices for all gas for the EU could not only bury the European gas market, but turn into an even greater crisis in the energy sector of the Union.
– There will be no talk of any market after such a decision. The Europeans will destroy what they have been building for decades. They themselves developed the spot markets and said that there was a fair price. They forced all companies, both Gazprom and Norwegians, and everyone else, to rewrite contracts with reference to the cost of gas on the spot instead of oil indexation. And now it turns out that the price there is completely wrong when it is high, and it needs to be adjusted manually.
This is very dangerous for the Europeans, because when they talk about a price ceiling, there is a high probability that they will lose this gas altogether. Even if some traders are satisfied with the offered price, this will be a violation of long-term contracts signed with traders earlier. Every contract has a pricing formula. But the European Union wants to say that the formula is wrong, it is not going to fulfill the agreement, and now gas should cost as much as it decided.
For Gazprom, for example, a price of $520 per thousand cubic meters is being discussed. But this is associated with a complete halt in gas supplies, since Gazprom will say that this is a violation of the contract, and it can rightfully stop exports. This does not even require a separate political decision, it is just a point of agreement. Europeans risk being left with an even bigger deficit.
SP: What about LNG?
— The subtle point is that there is no single frontier that would be the ceiling for all LNG suppliers. Relatively speaking, the price in Asia is now $1,500 per thousand cubic meters, and in Europe – $2,000. And the Europeans say: “Let’s make $1,500 plus 5%, and the gas will still go to the EU.”
But it doesn’t work that way. The Americans have a lower cost of delivery to Europe than to Asia, so they have one limit, after which gas will go to this market. Qatar has a different shipping cost, while Australia has a third. There is no common price that will keep supplies in the EU. This means that each supplier will need to set the price manually.
All this is a path to shortages and insecurity of supply, because the EU authorities are trying to regulate everything in a bureaucratic way, but the market is changing very quickly. Let’s say it gets colder in Asia, the price per hour jumps up, tankers turn around and go there. While the Europeans are reviewing the mechanism and deciding how what should be indexed, LNG will already be gone.
Europeans with such ideas run the risk of being left at the height of the heating season not only without Russian gas, but also without any other. We hear absolutely absurd statements about the need to make a price ceiling for all pipeline suppliers – Norway, Algeria, Azerbaijan.
Moreover, according to European officials, non-gas power plants should sell electricity on the European market at a fixed price, but they offer a price that will not even pay for the purchase of coal for a coal-fired power plant. This is an absurdity that they are trying to fill with money, as if they do not understand that this will lead to an increase in inflation. Europeans create additional problems for themselves, and it all sounds very strange.
“SP”: – Maybe they are ready to take a risk, since they have already almost filled their underground storage facilities and are ready for winter, as the European authorities claim?
“Even if they accumulate 90% of gas reserves in underground storage facilities, even if gas supplies from Russia remain at the current level, this does not guarantee a trouble-free passage of the heating season without shutting down some category of consumers, most likely in industry.
Where did the figure of 80% for UGS occupancy come from? This is the average occupancy of underground storages, with which they approached the previous heating seasons. But in previous seasons, much more gas came from Russia every day throughout the winter. Trying to aggravate the situation even more is very reckless on the part of the Europeans.