Europe failed to drive Russian gas to the ceiling

EU energy ministers have not agreed on a “price ceiling” for gas. At first, this requirement was put forward in relation to exclusively Russian raw materials, and then expanded to other suppliers providing the countries of the Old World with “blue fuel”. How realistic is the centralized introduction of regulation of the cost of energy resources, the shortage of which is experienced by Europe, explained the director of the Institute of National Energy Sergei Pravosudov.

– The European Commission this week prepared a document for an extraordinary meeting of EU energy ministers, which outlines a plan to mitigate the situation on the energy market of the continent. Among the proposed emergency measures is the imposition of a price ceiling on Russian pipeline gas. The document was not approved, although most European states are negatively opposed to Russia. What then do the European leaders want to change in gas pricing?

– We need to remember how the world gas market was created. If oil has been extracted and processed into finished fuel since the second half of the 19th century, then the possibilities of “blue fuel” were recognized only in the second half of the 20th century. One of the first to understand this was in Germany, which has been buying Russian gas for several decades.

– How was the cost of Russian, that is, Soviet gas determined at first?

– The cost of gas was tied to oil prices. I had to come up with a new “value replacement” scheme, formulated by the Minister of Economics of the Netherlands, Jan de Pous, in 1959. The formula was referred to as the “Groningen principle”, implying pricing in long-term contracts for the supply of natural gas. It was first used when concluding contracts for the supply of gas from the Groningen gas field in the Netherlands.

What does this principle imply?

– The concept was as follows. Pricing in long-term gas contracts looked like this: the cost of a thousand cubic meters was tied to the cost of alternative raw materials that could replace “blue fuel” in terms of a separate energy carrier. In other words, how much gas must be used to produce a certain amount of electricity. This volume of fuel was compared with the kilowatts produced by processing crude oil, as well as derivatives of “black gold”, such as fuel oil.

– That is, the price was calculated as follows: how many kilowatts can be generated from a barrel of oil, the same amount of electricity can be produced from a thousand cubic meters of gas?

– More or less like this. However, estimates of these volumes may seem biased. One thousand cubic meters of natural gas can be compared to 0.93 tons of oil equivalent.

– What is the oil equivalent?

– Conventional unit of measurement, usually used to compare the use of large amounts of energy from different sources. When burning gasoline and diesel fuel, that is, the same fuel oil, one amount of energy is released, while the use of natural gas gives different indicators.

– That is, less oil is needed to heat a house than when using “blue fuel”?

– It depends on what units the living quarters are provided with. Modern devices for processing hydrocarbon fuels make it possible to save on purchased raw materials and regulate household heating.

– If the Europeans demand to establish controlled prices for natural gas, do they feel the need for this particular type of energy?

“Obviously that’s how things are. European energy has been dependent on supplies from Russia for more than fifty years. The countries of the Old World have recently been constantly complaining about higher gas prices, because of which they are on the verge of an energy crisis. The cost of heating is rising, inflation is breaking records, a recession is approaching – industrial enterprises stop because business owners have nothing to pay for fuel and electricity.

– In such a situation, the EU proposes to introduce a ceiling on the cost of Russian energy resources? Will it save Europe from energy starvation?

– The ceiling is proposed to be introduced not only for Russian hydrocarbons, but also for energy products from other countries.

– How will the cost of contracts be recalculated?

– The parties announcing such a scenario apparently do not suspect anything about the Groningen principle.

– And what could be this price ceiling? The cost of gas production in Russia is $20 per thousand cubic meters. Another $30 goes towards processing and transporting the fuel. Then the selling price of our gas will be around $50. But a thousand cubic meters on the European market costs at least $2,000 (experts say that prices will reach $5,000 by winter). For a fair assessment of Russian “blue fuel”, oil barrels will also have to be recalculated first into cubic meters, and then into joules of electricity.

– It is unlikely that anyone will recalculate specific figures. Europe a few years ago refused to link prices fixed in long-term gas contracts to oil quotations. The EU countries decided to focus on the exchange value of “blue fuel”, considering that the price prescribed in the contracts can be much higher than short-term quotations that can be obtained on the free market. Such an approach to international trade rules is quite understandable: two years ago, when there was an excess of hydrocarbons on the world fuel market, prices for raw materials were falling. Then you could save money.

– Now it is hardly possible?

– Volumes of gas supplies to the world market are insufficient to meet demand. However, the main difficulty is not in the stabilization of demand and supplies. Judging by the latest reports from Gazprom, the monopoly sells about half of its raw materials under spot, that is, short-term contracts. In fact, at market prices. “Blue fuel” on the European market is primarily purchased by traders who do not care about the energy crisis in Europe. Such resellers are primarily concerned about the price – if there is $ 5,000 per thousand cubic meters, then their premium will increase significantly.

– But how can they “do not give a damn” if a specific price is determined that cannot be exceeded?

– European governments will have to lower the indication of the marginal cost of raw materials “from above” and bring it to independent traders, who may represent not only European countries, but also other regions of the world. It will be extremely difficult for the European Commission to regulate relations with suppliers of “blue fuel”, as well as with firms that are engaged in the sale and distribution of energy resources. Each of the merchants will pull the “gas blanket” over themselves – it is possible that a difference in price of one dollar will cause a rather sharp reaction from competitors. Disputes can arise not only with Russia, but also with Middle Eastern manufacturers, companies that are not associated with our country.

– That is, Europe will no longer have to argue about the gas ceiling with Russia?

– With all suppliers of raw materials who are not satisfied with the assigned marginal cost. From a financial point of view, conflicts can arise for every dollar suddenly lost by the exporter. This may result in litigation not only with Russia, but also with energy traders, to whom no one has any geopolitical claims, in theory.