EC wants to impose a price ceiling on all imported gas

The European Commission (EC) intends to present a proposal on setting a ceiling price for Russian gas at the EU Council meeting on September 9, said EC President Ursula von der Leyen on September 7.

“We are focused on reducing gas prices. In this regard, we will propose a price ceiling for Russian gas,” the official said (cited by Interfax). And she added that the EC is also considering the possibility of introducing a price ceiling for “non-Russian gas”, including liquefied gas (LNG). But such a measure of regulation, she said, could lead to a reorientation of supplies to other markets.

According to the draft document developed by the EC, which regulates the conditions for limiting the cost of fuel, prices for Russian pipeline gas should not exceed 50 euros per 1 MWh (about $528 per 1,000 cubic meters), sources told Politico. According to the ICE exchange, on the Dutch TFF hub on September 7, October gas futures cost more than $2,390 per 1,000 cubic meters. m. The prices of Gazprom’s European long-term contracts also take into account spot quotes, but with a certain lag (from a month or more). According to Vedomosti’s calculations based on data from ICE and Platts, now spot gas prices in the EU are higher than in Asia by about $500 per 1,000 cubic meters. m.

Von der Leyen specified that the share of Russian gas in imports in 2022 has decreased from 40% to 9%. She also recalled the statement of Russian President Vladimir Putin that the Russian Federation will not supply energy to countries whose authorities will make political decisions that contradict the terms of contracts for the supply of oil or gas. “Will any decisions of a political nature be made that contradict the contracts? Yes, we simply will not fulfill them! In general, we will not supply anything if it is contrary to our interests. We will not supply gas, nor oil, nor coal, nor heating oil, we will not do anything!” Putin said on March 7 during WEF-2022 in Vladivostok (the recording is available on the forum website).

At the same time, according to von der Leyen, Europe has already exceeded its own plan to fill underground gas storages (UGS). Already now they are filled by 82%, while the EC set the task of filling them by 80% by November 1, she specified. According to the President of the European Commission, on September 9, in addition to limiting gas prices, the EU Council will also consider a strategy for “reasonable savings in electricity.” It includes the reduction of electricity consumption during peak hours and the issue of joint purchases of energy carriers by EU member states.

The issue of introducing a ceiling on gas prices has already caused a heated discussion among the members of the European Union. In particular, the Minister of Industry and Trade of the Czech Republic, Jozef Sikela, said on September 7 that Prague would not participate in the discussion. He explained that such a decision will not be a way out of the energy crisis that has gripped the EU. Politico, citing sources, reported that the German Ministry of Economy was of the same opinion. France, according to the newspaper, is in favor of introducing a cap on prices for Russian gas.

According to the International Energy Agency (IEA), at the end of 2021 “Gazprom” delivered about 140 billion cubic meters to the EU. m of gas. For 8 months of 2022, according to the Russian gas monopoly, its exports to non-CIS countries fell by 37.4% to 82.2 billion cubic meters. m. Now the export of Russian gas to the EU is carried out only along two routes – along the Balkan branch of the Turkish Stream and in transit through the gas transmission system of Ukraine. Deliveries via Nord Stream were completely stopped for technical reasons at the end of August 2022.

According to Vedomosti calculations based on data from the European Network of Gas Transmission System Operators (ENTSOG), on September 6, about 82 million cubic meters were exported to the EU. m of Russian gas, of which through Ukraine – about 42.4 million cubic meters. m and about 40 million cubic meters. m – through the Turkish Stream.

The introduction of a price ceiling could completely stop gas supplies from Russia to the EU, said Aleksey Grivach, deputy general director of the National Energy Security Fund. According to him, Gazprom, guided by the provisions of Decree of the President of the Russian Federation No. 172 dated March 31, 2022 “On the special procedure for the fulfillment by foreign buyers of obligations to Russian suppliers of natural gas”, will be forced to stop deliveries until it receives full payment in accordance with with existing contracts.

The expert clarified that the current spot gas prices in the EU are “equivalent to the price of oil in the region of $400/bbl.” (the current Brent quote is $92.2/bbl), and during the heating season, if problems with gas supplies from Russia persist, their further growth is also likely. Grivach also added that suppliers of LNG, “more flexible” in terms of logistics, in the event of a price ceiling in the EU, obviously, will reorient themselves to other markets. “This may complicate logistics, but at the same time exacerbate the supply crisis in Europe, and perhaps even become the basis for breaking some long-term contracts,” he believes.

According to Vedomosti’s calculations, based on data from ICE and Platts, spot gas prices in the EU are now higher than in Asia by about $500 per 1,000 cubic meters. m.

Maria Belova, director of research at Vygon Consulting, agrees with this. In the context of a significant decline in pipeline gas exports from the Russian Federation, the EC proposal to introduce a price ceiling, in her opinion, “looks illogical.” She points out that “Gazprom“and so reduces export volumes” for technical reasons “(the Russian company stopped pumping through Nord Stream 1 due to the impossibility of repairing gas compressor units based on turbines Siemens. – “Vedomosti”). “Obviously, Gazprom is not taking any steps to capture the EU energy market, and the decision to introduce a price ceiling will lead to a complete cessation of pipeline gas exports from Russia,” Belova believes.

Even taking into account the growth of spot prices in the EU, long-term contracts of Gazprom, according to Belova, remain beneficial for buyers. Moreover, some of them, despite the efforts of the EC, are still tied to the oil product basket, she added.

Vedomosti sent a request to Gazprom.