Europe is going to introduce a price ceiling for Russian gas: what will it be

Experts assessed Moscow’s ability to bypass price restrictions on domestic “blue fuel”

European countries are hatching plans to set a price ceiling for pipeline gas from Russia. This was stated by the President of the European Commission Ursula von der Leyen. It is noteworthy that this initiative was announced literally the next day after the G7 countries agreed to impose cap prices on Russian oil. The gas ceiling was also discussed at the G7 summit, but the matter did not come down to specifics. How exactly such a gas ceiling can work and how strong the impact on the Russian economy will be as a result of its introduction, MK asked the experts.

So far, the statements of the leaders of “unfriendly” countries regarding the gas price ceiling for Russia are extremely vague and more like a declaration of intent. Thus, according to Bloomberg, the G7 will only instruct their relevant ministries to study the possibility of introducing marginal prices for gas from our country.

Such uncertainty in the wording is quite understandable, notes Aleksey Grivach, Deputy General Director of the National Energy Security Fund, since it is in principle unclear how such a ceiling can be introduced when multi-year contracts have long been signed. And if someone wants to unilaterally change the price, then the seller, that is, Gazprom, can simply stop deliveries.

“The Europeans themselves said that we have contracts and we need to fulfill the contracts. But if the corresponding amount of money does not come under the contract, supplies will be limited,” the expert explains, “Therefore, the introduction of some price ceiling for Russian gas, for all gas flows that enter Europe, simply will not work.” In other words, the introduction of a price ceiling would in fact be tantamount to an embargo on domestic gas. But this is exactly what sensible European leaders do not want to announce: they have already faced serious energy problems in the face of falling Russian gas supplies, and a cold winter lies ahead.

A separate mystery is exactly what amount to define as the “ceiling”. Gas is sold under long-term contracts, under which the cost of the resource is tied to exchange prices, but with a lag of up to several months. “The paradox is that the G7 is discussing the ceiling, but now gas on the European exchange costs about $2,500 per thousand cubic meters, while Gazprom sells fuel much cheaper under its contracts,” says Sergey Suverov, investment strategist at Arikapital Management Company.

According to him, the price under Gazprom’s contracts is noticeably lower than spot prices. Say, in the summer it was less than $1,000 per thousand cubic meters. “Therefore, the proposal to set marginal gas prices specifically for Gazprom, to put it mildly, is not very effective,” the expert concludes.

“The mechanism being developed in the West for setting price limits on Russian export gas cannot be called logical,” Sergei Pravosudov, director general of the National Energy Institute, echoes his colleague. For a decade, Europe has been urging exporters and importers to focus on the exchange value of “blue fuel” when concluding transactions, calling spot market quotes much more fair than tariffs prescribed in long-term contracts, including with Russia. At some stage, this was true: during periods of falling prices for raw materials, long-term agreements allowed Gazprom to make super profits. But now the situation is fundamentally different: the cost of a thousand cubic meters of “blue fuel” on the free market exceeds $2,500, while the contract prices of a Russian company are 2-3 times lower. “The exchange principles for calculating gas prices, which have barely managed to earn money, will again be under big question, since in order to introduce the marginal cost of hydrocarbons, the European Commission will have to persuade exchange players not to let prices go beyond a certain bar. What is objectively impossible – traders are interested in filling their own pockets, and not in the implementation of political conventions, ”the expert believes.

Of course, Moscow should not dismiss the threat of a ceiling on gas prices as unimportant. Since we are extracting energy resources, they need to be sold to someone, and if the previous buyer changes the conditions, then we will either have to agree with him or look for a new one. But you can’t simply transfer pipes from one place to another… Will it be possible, if something happens, to reorient gas supplies to other, “friendly” consumers?

An indirect answer to this question is given by last year’s statistics of the Federal Customs Service. According to the Federal Customs Service, natural gas supplies by pipeline in 2021 amounted to 203.5 billion cubic meters. Of these, 48.2 billion cubic meters fell on the share of “unfriendly” Germany. But the next places in the top three were occupied by Turkey (26.8 billion) and Belarus (19.8 billion), from which, naturally, no sanctions will follow. And in the top ten, in addition to five European countries (Denmark, France, Poland, Austria, the Netherlands), there are Kazakhstan (9.3 billion) and China (7.1 billion). Since then, the ratio of gas exported by the Russian Federation has already noticeably changed in favor of Asian states, and there is no doubt that if the idea of ​​a “gas ceiling” is further pushed through, this tilt to the east will grow even stronger.