The European zugzwang: The West was preparing a gas trap for Russia, but fell into it itself

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, gave a comment to Baltnews.com about the attempts of the EU countries to establish a "price ceiling" for gas.

Some EU states are outraged by the high ceiling on gas prices, which will not help overcome the energy crisis and will not save either companies or consumers. But the European Commission, having proposed this mechanism, was not going to create a really working scheme.

As Alexey Gromov noted in an interview with Baltnews, the mechanism proposed by the European Commission is designed to stop extreme prices.

"The reason why they decided to introduce this mechanism at all is very simple - the European market has changed. Previously, it was based on pipeline supplies, primarily from Russia. When Europe went through the heating season, and gas demand was above average, the EU countries were saved by the fact that there are long-term contracts with the Russian Federation. Under them it was possible to take even more gas than prescribed in the documents, and at an adequate cost. There were no risks of extreme prices even during the period of peak demand. Now the market is completely different," Gromov noted.

"In November 2022, gas supplies from Russia to Europe decreased by about five times compared to the same period in 2021. Now liquefied natural gas has become the basis of the EU market. At the same time, it is very volatile. LNG supplies are determined by the price environment, which is why Europe have to compete with Asia," he added.

Alexey Gromov believes that if the price ceiling is not introduced, then there is a risk that in the autumn-winter period, when demand reaches peak levels, the price of gas will rise to the limit, because LNG must be kept at any cost. Otherwise, it will go to Asia, where market participants intend to compete for liquefied gas at a high cost.

"Theoretically, this is possible, but practically it is unlikely. This means that the European Commission is initially against the introduction of a price ceiling as a really operating mechanism. This structure understands that as soon as the price is lowered, the EU market will cease to be a market in the classical sense of the word, and suppliers LNG will take this into account," Gromov concluded.