“Will not be able to protect consumers”: a mechanism for limiting exchange prices for gas has been launched in the European Union

On Wednesday, February 15, a natural gas price ceiling came into effect in the European Union.

The countries of the association agreed on this initiative back in December 2022 to protect their citizens and economies from an excessive rise in the cost of energy resources.

“We will create a realistic and effective mechanism that includes the necessary precautions.

They will save us from risks and allow us to ensure the security of supplies, as well as the stability of financial markets,” said Czech Minister of Industry and Trade Josef Sikela.

The tool should be activated automatically when, for three consecutive days, gas at the TTF hub in the Netherlands is traded for more than €180 per 1 MWh (about $2,000 per 1,000 cubic meters) and its cost is more than €35 higher than world prices on SPG.

Once triggered, the mechanism will operate for at least 20 business days and will block all exchange transactions with raw materials if quotes have risen above the established limit.

“The price ceiling itself is, in fact, floating.

To establish it, the European leadership will first need to determine the cost of gas in the world according to the documents, mainly focusing on the Asian market.

That is, the price limit in the EU will increase in the event of a sharp rise in the cost of raw materials in Asia.

It is assumed that this will allow Europe to compete for the resource, ”Igor Yushkov, a leading analyst at the National Energy Security Fund, told RT.

It is noteworthy that, unlike the ceilings on prices for oil and oil products from the Russian Federation previously introduced by the EU, the new EU restrictions apply not only to Russia, but also to all other gas sellers that trade on the stock exchange.

We are talking, for example, about the USA, Norway, Algeria and Azerbaijan.

At the same time, restrictions do not apply to the supply of raw materials under long-term contracts.

Recall that gas prices in Europe began to rise rapidly in 2021.

This was preceded by the active promotion of the green agenda in the region and the EU's refusal to invest in traditional energy.

As a result, amid unfavorable weather conditions, the European Union faced a rush increase in fuel prices: if at the end of 2020 gas on the stock exchange cost about $240 per 1,000 cubic meters.

m, then already in December 2021, the quotes rose to almost $2.2 thousand.

In 2022, the situation escalated after Western countries imposed large-scale sanctions against Moscow due to the events in Ukraine and gas exports from Russia to Europe sank significantly.

At that time, Russia was the largest seller of energy in the EU market, so the reduction in supplies led to an even greater increase in prices.

So, at a certain moment, the cost of raw materials for the first time briefly exceeded $3.8 thousand per 1 thousand cubic meters.

m.

• © John Keeble

Under the circumstances, many experts did not rule out that in winter, with the onset of cold weather, gas prices in Europe would rise even more.

Meanwhile, in reality, quotes, on the contrary, began to noticeably decline and now fluctuate around $580 per 1,000 cubic meters.

m. Experts interviewed by RT associate such dynamics with several factors.

“Underground gas storage facilities in Europe are now about 66% full, well above the five-year average for this time of year.

The main reason for this was the warm weather that had settled in the region and, as a result, the not so active use of gas for heating, ”explained Alfa Capital analyst Alexander Dzhioev to RT.

In addition, as Russian supplies were refused, the EU began to actively purchase fuel from other sellers, which also allowed the Union countries to fill their storage facilities to the maximum by winter.

This was told to RT by Freedom Finance Global analyst Vladimir Chernov.

“At the same time, gas prices in the European Union are still several times higher than pre-crisis levels.

This suggests that the time of cheap energy resources for the EU is ending, since LNG from the United States or alternative fuel supplies from other countries cost Europe much more than it was when concluding long-term contracts with Russia, ”Chernov added.

Zero effect

However, even against the backdrop of the replacement of Russian supplies next winter, the European Union may again face a shortage of natural gas and a rush increase in prices.

This conclusion was reached in the EU itself.

“In the face of ongoing geopolitical tensions, a price surge similar to what happened in 2022 cannot be ruled out, especially now that LNG imports have become the main source of natural gas for the European Union.

A stronger-than-expected demand recovery in China… could spur global LNG consumption, making it more costly to fill storage in the summer again,” the European Commission said in a forecast.

• Gettyimages.ru

• © Stefan Sauer

According to Igor Yushkov, China has recently begun to ease quarantine restrictions, so the demand for energy resources in the Asian republic will grow steadily, as will the cost of raw materials.

As a result, China will begin to lure large LNG suppliers to its market, and the European Union will have to raise its price ceiling in a competitive struggle.

As a result, it will be much more difficult for Europe to fill its storage facilities than in the current heating season.

“If back in the first half of 2022 Europe could buy Russian gas in relatively large volumes, then in the second half of the year there were fewer such opportunities, and now there are practically none left, since most pipelines have been stopped.

Therefore, if necessary, it will not be possible to replace LNG with pipeline gas from Russia.

Now the EU needs to compete with Asia for a limited amount of LNG,” Yushkov explained.

Thus, according to the expert, even due to artificial price restrictions, the European authorities will still not be able to prevent the rise in gas prices in Europe.

A similar point of view is shared by Alexey Fedorov, an analyst at TeleTrade.

“Price ceilings will not really protect consumers.

The only thing that would really work would be long-term contracts with fixed prices or increasing supply.

However, it is almost impossible to achieve the desired result without Russian supplies.

Of course, it would be possible to further reduce fuel consumption in the EU, but this will lead to catastrophic processes in the economy of the union, ”concluded the interlocutor of RT.