The gas price ceiling is adopted: what will happen next

Alexey Belogoryev, Deputy Principal Director on Energy Studies of the Institute for Energy and Finance, commented to Forbes on the consequences of setting a "price ceiling" for gas in the EU at 180 euros per MWh.

According to Alexey Belogoryev, the decision taken is the success of supporters of interference in market pricing: Italy, France, Belgium, Poland, Greece and some other states that were able to push their position by imposing it on other countries.

"The decision taken is much tougher and more radical than what the European Commission proposed," the expert says. — This applies not only to lowering the ceiling, but also to other conditions. Firstly, instead of one exchange—traded instrument - futures for a month ahead — the ceiling is extended to three at once: futures for three months and a year ahead are added. In addition, we are talking not only about TTF, but about all hubs on the territory of the EU."

However, Belogoryev notes, opponents of the ceiling also managed to defend a number of fundamental reservations. First of all, spot trading and over-the-counter transactions have been removed from restrictions. "The obvious consequence of this may be a discrepancy in the dynamics of futures and spot prices for TTF in 2023," he believes. — This already happened in October 2022, but then spot prices were significantly lower than futures. In 2023, the opposite picture may be observed."

The fact that the ceiling is put into effect from February 15, 2023, and not from January 1, as previously assumed, does not mean that it will not be used during the current heating period, even if January and early February will be cold compared to long—term averages, large accumulated gas reserves in UGS - 83.8% from the nominal capacity as of December 18, will restrain prices, the expert believes. But, in his opinion, the main risks are now seen at the final stage of the season — at the end of February-March, if the reserves by this time will be severely depleted or the LNG supply will noticeably decrease.

The expert assumes that with the introduction of a price ceiling for gas, the margin of exports of Russian pipeline gas and LNG will sink. However, if the application of the ceiling leads to an outflow of LNG from the European market, this will increase the demand for supplies and strengthen the negotiating position of both Gazprom and Novatek. For the Asian market, the introduction of a price ceiling in the EU, in Belogoryev's opinion, is very favorable. It will be easier and significantly cheaper for Asian buyers than previously expected to compete with Europe for LNG cargoes, the analyst says.