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Europe rewrites the gas formula

18 October 2022

Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department

Sergey Kondratiev, Deputy Head of the Economic Department of the Institute for Energy and Finance, commented to the Kommersant newspaper on the reform of the EU energy markets.

The European Commission has proposed a new emergency package to lower the EU gas prices and secure supplies this winter. The plan will be discussed at the EU leaders' summit in Brussels on October 20-21. Its main idea is to strengthen solidarity between the EU member states and common gas purchases.

Sergey Kondratiev notes that the proposals of the European Commission create many uncertainties. It is not clear on what basis the “new price indicator” for LNG will be created, whether it will apply only to new contracts and spot transactions, or whether the regulator will try to apply it to previously concluded contracts as well.

With the proposal to jointly purchase gas, the EU de facto creates a consumer cartel.

“The situation on the market in the coming quarters will remain difficult, and therefore such a (probably not very mobile) consortium may not benefit from the volume of purchases in a scarce market, but lose from its own sluggishness, buying gas at price highs. In addition, many companies that may enter the cartel will probably continue to operate independently on the market, which will certainly create conditions for a conflict of interest,” he said.

For Russian gas supplies, the greatest threat is interference in TTF pricing, Sergey Kondratiev says, and it is not certain that countries or companies buying gas from Russia will easily agree on proposals from the European Commission. The impact on the general level of prices in the EU will be limited, the expert believes, since they will depend on the availability of gas and the balance of supply and demand.
Kondratiev Sergey V. Principal Director on Economic Studies, Head of the Economic Department
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