Cartel's blow to gas prices: EU starts joint gas purchases

Yelena Petrova

The European Commission has also determined the volume of purchases: 27 European and three neighboring countries will buy 27 billion cubic meters with a delivery period of 3 years.

According to the EU's plan, the sellers will be, first of all, suppliers from the United States, Qatar and North Africa, Bloomberg reports.

Vice-President of the European Commission Maros Sefcovic is confident that Europe is "creating a new system that will increase competition and bring new suppliers to the market, which will reduce gas prices." According to him, the interest in the new initiative on the part of sellers is huge.

Throughout the second half of 2022, the EU, struggling with its own overregulation, built a new procurement model. The main goal is to prevent a return to the situation of August last year, when gas prices in Europe reached $ 3,000 per metric ton. The planned purchases will amount to 15% of the storage facilities being filled, or 13.5 billion metric tons. Compared to the 338 billion consumed in 2021, this is a drop in the ocean.  Half of these deliveries came from Russian suppliers, primarily Gazprom.

The European spot gas market, unlike the Chinese one, was attractive to Gazprom because, Vyacheslav Kulagin, head of the World and Russia Energy Complex Research Department at INEI RAS, told Novye Izvestia that it was competitive:

- There are many partners and many buyers in Europe, and there is only one buyer who will dictate prices. It's one thing when you build a pipe to the market, and there you sell it in a competitive market. When you have one buyer, he understands that the seller has limited opportunities.

The Europeans do not limit the contingent of buyers only to gas intermediaries or energy companies. Already, consortia of buyers are being created by sectors of the economy. Metallurgical companies, manufacturers of ceramics and glass, auto giants showed interest.

On March 15, the European Commission will open registration on the platform for direct buyers, and only a few days later energy companies and intermediaries will join them. Contracts will be concluded directly between consumers and suppliers.

Maros Sefkovic points out the main advantage of the platform: the global market will open for small and medium-sized businesses that will be able to avoid overpaying intermediaries. But the idea of the European Commission, it will help in the fight against inflation.

On the part of buyers, 50 companies from all gas producing and producing regions of the world are planning to submit applications for participation.

So far, the first tender will be symbolic. However, it is already clear that if it succeeds, a symbolic unification of efforts can develop into something more and can change the European market. The main thing for the EU countries is to try to bring down the trend of last year and start buying fuel at prices close to American and Chinese.

Russian experts are cautiously assessing the prospects for the development of gas prices this year.

Viktor Khaykov, Chairman of the Board of the National Association of Oil and Gas Services, member of the Public Council under the Ministry of Economic Development of the Russian Federation, is confident that the cost of natural gas in the European market will increase:

- The price of gas in the second half of this year will break records by autumn-winter, because the reserves that Europe has formed against the background of a warm winter, it will all pass, and it will not be able to form reserves again without Russian pipeline gas supplies. The price of gas will rise, and supplies from Russia may also be increased. In any case, the gas price will grow strongly, and it will be a multiple of the current gas price.

There are logistical problems in Europe, other experts point out. Competition will inevitably arise among suppliers, primarily between American and Qatari companies, says Oleg Abelev, PhD in Economics, head of the analytical department at the Investment company Rikom-Trust:

- In order for exports to grow, it is necessary to build capacities that will allow exports to increase. Terminals for the acceptance of tankers that can carry LNG. While these are small volumes, besides, Qatar, the world's largest LNG producer, will compete with America, which may well build its terminals and increase natural gas exports, including to Europe. Moreover, the distance is closer.

It is still unclear whether the suppliers of Russian liquefied natural gas – Novotek and Gazprom - will take part in the tender. From the statement of the Vice-President of the European Commission, this remained behind the scenes. According to Russian energy market experts, if Russian gas returns to the European market, it will happen only for political reasons. One thing is clear – this refund will be at different prices. Gazprom and its comrades will have to dump. However, now nothing foreshadows such a development of events – while fighting is going on in Ukraine, the road for Russian hydrocarbons is open only to the east. The same Oleg Abelev believes that Gazprom's revenues in the European direction will decrease by 35-40% by 2023.

Vladimir Likhachev, Deputy Director of the Center for Sustainable Development of the HSE Institute of Economics and Regulation of Infrastructure Industries, in an interview with Novye Izvestia, could not name the prices at which Gazprom trades gas with China:

- No one knows the price, it's a trade secret. The data provided by the customs service of China, if you can only trust it, it also does not say anything, so there is only an assumption that these prices are quite ... low, but, it seems, cover the cost of production. Kind of like covering up. There was a lot of talk about this a few years ago, it seems that everything is traded according to these rules. This is a long-term contract, it is very difficult to revise it, while it suits everyone. It suits us because there is no other way out, it suits the Chinese because the price is normal for them.

As for the European market, cautious estimates suggest that the gas market may stabilize at $600 per metric ton. This will reduce the revenues of Gazprom and the Russian budget, which in January-February, according to the Ministry of Finance, lost 46% of oil and gas revenues compared to 2022. For comparison, non-oil and gas revenues decreased by 9%. The budget deficit amounted to about 1.6 trillion rubles.