Too cheap: Europe took up arms against Russian gas

MOSCOW, September 2 – PRIME, Oleg Krivoshapov. The European Commission ignored the harsh reaction from Moscow about the consequences of attempts to artificially limit the cost of Russian oil and announced its intention to do the same with regard to natural gas from Russia. Prime tried to understand what the consequences of such decisions might be for the European Union.

PRICE CEILINGS

The President of the European Commission (EC), Ursula von der Leyen, openly stated on Friday that the structure she leads will soon come up with an initiative to introduce a price ceiling for Russian natural gas in the EU.

Literally the day before, a similar “ceiling” idea regarding Russian oil was commented on by Russian Deputy Prime Minister Alexander Novak. He said that countries that decide to artificially limit the cost of Russian oil will simply be deprived of the opportunity to purchase it. Thus, Russia directly and unequivocally voiced its position on this issue.

It should be noted that the eyes of observers are, in fact, no less interested in the problem of exporting Russian gas to Europe. On September 3, after three days of preventive maintenance, deliveries through the Nord Stream pipeline should resume. For quite a long time, the Western media have been discussing the topic of the possible termination by Gazprom of pumping through this gas pipeline under any pretext due to purely political reasons. And all the indications from the Russian side to the fact that the previous reductions in supplies via Nord Stream were caused solely by technical difficulties provoked by the actions of the European Union, which was short-sightedly involved in the sanctions confrontation with Russia, are not taken into account.

Obvious risks for the normal operation of the pipeline in the future, which cannot cancel individual exceptions from the sanctions for certain items of equipment that need maintenance on the territory of unfriendly countries, are ignored.

At the same time, the “collective West” represented by the leaders of the “Big Seven” (G7) countries under the auspices of the United States finally announced its intention to force the entire world oil market to function in the mode of artificially limiting the cost of volumes shipped from Russia. The warnings of industry experts who do not hide their opinion regarding the inevitable negative consequences for the entire global supply system of “black gold”, again, are not perceived.

As a result, experts and observers are wondering if Europe will try to set a “ceiling” for prices for Russian natural gas, without waiting for the consequences of a similar step in relation to oil from Russia. And the head of the EC, with her today’s statement, actually tried to remove the uncertainty in this matter.

LESS GAS

Experts unequivocally point out that there is a steady deficit in the global gas market, which cannot be overcome in the coming years, including through liquefied natural gas (LNG). At the same time, the total consumption of “blue fuel” in the EU countries for the first half of 2022 sharply decreased, despite a noticeable increase in LNG imports. The reduction, according to various estimates, amounted to 10-20%.

In fairness, it must be admitted that the pace of filling underground gas storage facilities (UGS) in the EU at the moment is ahead of even the announced ambitious plans (reaching 80% by November 1 of this year).

However, now no one can predict at what pace Europe will spend the accumulated volumes. This will largely depend on weather conditions and the willingness of the inhabitants in Germany (and not only) to follow the recommendations of their authorities to wash four points on the body with warm water, ignoring the rest.

The overall picture, combined with the “jumps” in gas prices on the index of the key spot hub Title Transfer Facility (TTF) above $3,000 per thousand cubic meters (which already makes it quite possible that the price of the energy carrier will rise to $4,000 per thousand cubic meters, and even more significantly), is clearly indicates vague prospects for the European market in the coming heating season.

Von der Leyen’s declaration only reinforces the ambiguity of these prospects: there is no doubt about the consequences of introducing a “ceiling” on Russian gas prices in Europe. And the answer in absentia to her statement by Deputy Chairman of the Security Council of the Russian Federation Dmitry Medvedev is a clear evidence of this.

“The time has come for the EU to impose a price ceiling on pipeline gas from Russia,” said Auntie von der whatever Leyen. It will be like oil. There will simply be no Russian gas in Europe,” he wrote on his Telegram channel.

LNG WILL NOT BE ALSO

The problem for Europe is that in any case it will not be possible to replace the “lost” volumes of “blue fuel” from Russia at prices acceptable to Europeans. Even if a significant share of the LNG consumed goes to the EU under contracts in which the cost of volumes is tied to the relatively low quotations of the key US hub, Henry Hub, the complete cessation of Russian exports of pipeline gas (still a significant share of European consumption) will certainly lead to to a sharp increase in spot prices in Europe and, as a result, in the rest of the world. And the cost of physical volumes of LNG received by Europeans under contracts will also increase markedly in the coming months, or even weeks. Although Brussels officials declare exactly the opposite goal.

The EU authorities are aimed at artificially limiting prices exclusively for Russian gas. But Europe’s population and business will hardly appreciate the good intentions of von der Leyen and her “Kremlin-fighting” apparatus if they pave the way to new record highs in energy markets. Moreover, the EU has never known a complete cessation of the supply of “blue fuel” from Russia in the absence of its own production, the global shortage of gas and the embargo on other Russian energy carriers.

And while it is difficult even to predict all the consequences of such a development of events for Europe. One thing is clear – 4, 5 or more thousand dollars per thousand cubic meters of gas, which now seem fantastic, in a negative scenario, by the end of the year may turn out to be quite ordinary prices. The consequences for the European economy, which cannot withstand the current quotes, in this case will be catastrophic.