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The West has set a gas price ceiling: How it will hit Russia and Europe and how we will respond

On December 20, the EU countries set a dynamic price ceiling for Russian gas.

On December 20, the EU countries set a dynamic price ceiling for Russian gas.

Photo: GLOBAL LOOK PRESS

Hanging ceilings – here it is, the new passion of European politicians! For several months they fought for the ceiling of prices for Russian oil. In early December, it was set at $60 per barrel. And now, having dealt with oil, politicians got to gas.

KEEP FUEL IN ASIA

On December 20, the EU countries set a dynamic gas price ceiling at €180 per MWh. This condition will take effect on February 15, 2023. The word “dynamic” means that in which case the ceiling can be hung a little higher or lower.

“This mechanism does not set a hard limit, but it will prevent the occurrence of sharp jumps in gas prices,” she told reporters. European Commissioner for Energy Kadri Simson.

But most readers and experts are accustomed to measuring gas prices in dollars per thousand cubic meters. According to Leading Analyst of the National Energy Security Fund Igor Yushkov€180 per MW/h is about $2,000 per thousand cubic meters.

– Not so much by modern standards, – states Yushkov. – In the summer, prices in Europe on the stock exchange rose to $3,000 per thousand cubic meters. And $2000 is just the average price for the year. Around this mark, prices circulated on the stock exchange.

A little more about the “dynamic” prices. As Igor Yushkov explained to us, the “ceiling formula” includes a condition: gas prices in the EU can be $600 higher than in Asia. Simply put, if a thousand cubic meters of gas suddenly costs $2,000 on the Asian market, the EU will raise its ceiling to $2,600. And then it will be more profitable for suppliers to sell gas to Europe. Thus, the Old World insures itself against a possible shortage of fuel. And then all of a sudden in Asia all the gas carriers will go to the East and the EU will be left with nothing?

– For European consumers it will be bad, because it is expensive. But then they will be with gas, – the expert explains.

IMPLICATIONS FOR RUSSIA

It turns out that the “gas ceiling” has two main differences from the oil ceiling.

1. It concerns not only Russia, but also all other gas suppliers to Europe. And there are many of them, especially after the stop of the Nord Stream. These are Qatar, and Algeria, and Azerbaijan, and other countries.

2. Not the fact that this mechanism will work at all. After all, the exchange price may not rise above the stated limit. For example, on December 20, gas was worth about $1,250 per thousand cubic meters on the stock exchanges. And the ceiling itself can change.

And the main question: is this ceiling dangerous for Russian budget revenues? We hasten to reassure: most likely not. Igor Yushkov explains that it is unlikely that any contract for the supply of Russian gas to Europe will reach $2,000 per thousand cubic meters. We usually sell “blue fuel” cheaper. But if Gazprom is paid less, directly referring to the ceiling, it will stop deliveries.

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