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"Quite a dangerous level"

20 December 2022

Gromov Alexey I. Principal Director on Energy Studies, Head of the Energy Department

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented on the parameters of the "price ceiling" for gas introduced by the EU countries to Sputnik.

"The measures agreed by the energy ministers of the EU countries are, in fact, non-market. The price ceiling of 180 euros per MWh is a rather dangerous level. If the level of 275 euros per MWh, from which the bidding began, was practically unattainable on the European market even in conditions of excessively high oil prices, then 180 euros per MWh is quite an achievable level. In 2022, gas prices at a level comparable to 180 euros per MWh and slightly higher were held in Europe for more than six months. Therefore, of course, this mechanism creates a certain pressure on the market, changes the rules of the game and in the future reduces the liquidity of European gas hubs and their attractiveness for LNG sellers," he said.

The gas price ceiling may turn out to be a dangerous and ineffective measure for the European gas market, the expert predicts.

"All this can be realized in a negative way for the EU in the event of an unfavorable scenario: a cold winter, high demand for gas both in the EU and in Asia. In this situation, gas will most likely flow to Asia, where there are no price restrictions, and Europe will face the problem of its energy supply. There is no such danger now, but in the future it may have a painful impact on the gas market, reducing its attractiveness for exporters. I think if such a negative scenario is implemented, Europe may well opt out of this measure," Alexey Gromov believes.

For Russia, the situation looks relatively neutral, the expert noted.

"Firstly, the volume of Russian supplies to the European market has already significantly decreased, and secondly, Russian gas on the European market has been already sold at the lowest prices compared to gas from Norway, LNG from Qatar and even more from the United States. Therefore, I do not see any negative effects from this decision for Russia," Alexey Gromov concluded.

Gromov Alexey I. Principal Director on Energy Studies, Head of the Energy Department
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