Europe creates a mechanism for replacing Russian gas: experts assessed Moscow’s losses

European countries intend to streamline gas trade in the domestic commodity market. In connection with the decrease in the supply of “blue fuel” from Russia, which covered the energy needs of the Old World for half a century, the EU members decided to create their own sales platform, allowing anyone who wants to buy raw materials in the required volumes and at affordable prices.

The warm winter, although it softened, did not finally solve the energy problems of Europe. Last year, Gazprom cut supplies to the countries of the Old World by more than half, and after the introduction of new energy sanctions by the West, Russian exports risk falling to 20% of their previous volumes. However, Europe still does not care at all: the underground storage facilities of the continent are bursting with gas reserves – now 30% more raw materials have been accumulated there than is required to exit the heating season. Against the backdrop of these positive trends, the EU leaders are going to create a new independent trading platform, which, according to its initiators, will free the Old World commodity market from the dominance of large energy suppliers and provide an opportunity for all buyers to conclude transactions for the purchase or sale of hydrocarbons that are optimal in price terms.

During the implementation of this project, the European Union in April will announce a special collective tender for the supply of gas. Potential exporters of hydrocarbons are American, African and Middle Eastern companies, contracts with which Brussels plans to conclude no later than June. The main highlight of the shopping center will be the possibility of joint acquisition of energy resources by European countries: when financial and logistical resources are combined, it will be much cheaper for customers to buy large lots of raw materials in order to then divide them in proportion to their share in the transaction.

Assess the effectiveness of the new energy mechanism of the EU, “MK” asked the Russian experts.

Fedor SIDOROV, private investor, financial analyst:

“Gazprom has already lost the European market, which until recently was supplied by five routes with about 160-180 billion cubic meters of fuel per year. Five routes are the Nord Stream, which is not working after the sabotage, and its German branch OPAL, the Yamal-Europe gas pipeline, through which supplies have not been made since the summer of 2022 due to Russian counter-sanctions, the Ukrainian GTS, which transports minimal volumes of raw materials, and ” Turkish Stream, which supplies the southern regions of the European Union. Nord Stream 2, due to which Gazprom’s share in the continent’s market could increase to 200 billion cubic meters per year, was never put into operation.

On the one hand, the loss of the European market in Russia has not yet been replenished. Deliveries to Asia do not compensate for the lost sales segment. Only one route leads to China – the Power of Siberia pipeline with a capacity of less than 40 billion cubic meters per year (so far only 20 billion cubic meters are supplied). The highway “Power of Siberia – 2” is only at the design stage.

At the same time, taking into account all the above aspects, we can conclude that the creation of a “cartel of buyers” (in association with OPEC +, only from importers of raw materials) in the gas market will not affect the current positions of Russian gas in any way. This decision is made by the Europeans in order to protect themselves from sharp fluctuations in the cost of energy resources in the future. The organization being created will determine the total volume of gas purchases for the EU countries, and thereby begin to influence the final price of hydrocarbons. But it is difficult to say how effective such a tool will be. The world gas market is undergoing another reformatting period. In addition to the European premium segment, there is also an Asian direction, the demand for which is growing year by year. If European consumers begin to dictate price terms to suppliers, then the latter can simply go to Asia, where they can easily find a solvent partner. In any case, the formation of a “buyers’ alliance” is a long process. Until such an organization is created and its decisions begin to determine the situation on the market, a lot of time may pass: OPEC was created in 1960, and only 20 years later the cartel began to control 50% of the world’s oil production.

Vladimir KOVALEV, TeleTrade analyst:

“European countries are joining forces for joint gas purchases. A client pool is being formed, which, under certain circumstances, can turn into a monopoly of buyers. In economics, this phenomenon is called “monopsony”. Such a cartel would present the overall pooled gas demand for Europe on a single trading floor involving various suppliers. It is assumed that the new exchange will operate on the principle of “wholesale – cheaper”, which will help limit the cost of energy resources. Previously, there was no need for such a structure, since Gazprom has been providing stable supplies of inexpensive pipeline raw materials for decades. The share of Russian gas in the European market was approximately 40%.

By early 2023, European purchases from Russia had dropped by 80%. Now Russian gas is being replaced by other suppliers. Overcoming dependence on Russian imports, along with fuel austerity, has allowed commodity prices to drop below $500 per 1,000 cubic meters, which has not been seen since the fall of 2021.

Meanwhile, the EU’s energy problems have not been overcome. There remains the danger of a shortage of fuel for next winter, as well as increasing costs for more expensive LNG, for which the countries of the Old World have to compete with another large consumer – China. The launch of a new trading platform, scheduled for this summer, is designed to fine-tune the mechanisms for gas purchases in a single centralized system with subsequent distribution between countries and specific users. As planned by the organizers, this will reduce the costs of individual consumers.

It will be extremely difficult for Gazprom to make up for the loss of pumping volumes to Europe in other directions. Pipelines to the Asian region, primarily to the Celestial Empire, are insufficient in terms of throughput and are remote from the main fields that supplied Europe. The formation of a new appropriate infrastructure requires huge investments and a long time. In addition, the additional demand for gas, in addition to the existing one, in Asia is much less than the drop in volumes in Europe.”