"An incentive to increase supplies": what does the introduction of a ceiling on Russian gas prices mean

Alexey Gromov, Principal Director on Energy Studies of the Institute for Energy and Finance, commented to the newspaper Vechernaya Moskva on the possible consequences for the EU and Russia from the introduction of a "price ceiling" for gas by the EU countries.

For Russia, the ceiling of gas prices in Europe may be beneficial, Gromov noted.

— Our gas has always been and remains the cheapest in Europe, — emphasizes the interlocutor of "VM". — It has never fallen under the price ceiling — even at the price peaks in the summer of 2022. Nothing changes for Russia at all. This is not at all the same as the oil price ceiling. Moreover, the gas price ceiling can reduce the market attractiveness for LNG supplies to Europe, and the EU may have an incentive to increase the supply of Russian pipeline gas in conditions when more marketable LNG will escape to adequate markets.

If the winter in Europe turns out to be harsh, the market will hardly notice the introduction of a price ceiling, the expert is sure. However, the long-term prospects for such a solution are not very bright, because the gas market does not like any restrictions.

At the moment, gas prices in Europe are below the established ceiling — at the level of 115-140 euros per megawatt hour. However, the situation may seriously change in the near future, Gromov warned.

— The demand for gas in Europe will grow, — the expert explains. — Demand will also grow in Asia. In this situation, suppliers of liquefied natural gas will have a choice — to supply gas to Europe with a price ceiling or to reorient to Asia. In my opinion, in this case, the business will choose the Asian direction.