HomeMediaMedia PublicationsAnalyticsHow the gas price ceiling will affect Russian supplies

How the gas price ceiling will affect Russian supplies

28 February 2023

Salikhov Marcel R. President, Principal Director on Economic Studies, Head of the Economic Department
Тип: Papers

Tinkoff-Journal published an article by Marcel Salikhov, President of the Institute for Energy and Finance "How the gas price ceiling will affect Russian supplies".

On February 15, the gas price ceiling for the European Union came into force. The limit is 180 € per 1 MWh, or about $2,000 per 1,000 m³. Actual gas prices are currently around $600 per thousand cubic meters.

What is happening with Russian exports

It shrinks without any ceiling. Until 2022, Russia produced 720-760 billion cubic meters of natural gas, exported a little more than 200 billion, of which 150 billion cubic meters went to Europe.

According to our estimates, exports to the EU from Russia have more than halved to 58 billion cubic meters. This year, exports will fall by about two times more: to the level of 25-30 billion cubic meters.

There has not yet been a noticeable reorientation of supplies: for example, Turkey purchased 18% less gas in 2022 than in 2021. The reason is that since the second half of last year, Russian contracts have not been very profitable, and Turkey has different suppliers: there are supplies from both Iran and Azerbaijan, and it also buys LNG.

China does not disclose export volumes, but according to our estimates, in 2022, Russian exports to China amounted to 16-17 billion cubic meters. Compared to 2021, the growth is 60%, but this growth was planned back in 2019, when supplies began through the Power of Siberia gas pipeline. By 2025, deliveries should reach the volume of 38 billion cubic meters.

At the same time, China does not need to quickly negotiate with Russia on the supply of new large volumes. China has alternative suppliers, but Russia has no alternative consumers. Therefore, we do not see any firm agreements on the “Power of Siberia 2”. And if I were in the place of China, I would try to get the lowest possible price under this agreement.

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