Europe is puzzling over how to reduce gas prices: price limit or Ukrainian transit

The cost of gas in Europe exceeds the figures of a year ago by two times and the EU started talking about a new price limit. The easiest way to reduce prices is to resume the Ukrainian transit of Russian gas, which is not under sanctions, experts say.

Gas in Europe has risen in price this week to the highest since April 2023. Quotes rose to almost $ 630 per thousand cubic meters, and on February 12 they are trading at $ 605. A year ago, the price of gas in the countries The EU was twice as low. Despite the high cost, countries The EU continues to empty storage facilities due to colder weather with periods of calm and the shutdown of Ukrainian transit of Russian gas. Since the beginning of the heating season, gas reserves have halved to 52 billion cubic meters, and by early April they may decrease to 27-28 billion cubic meters.

Europe finished the season with such reserves in 2022, but then Europe still had Gazprom with Nord Stream, Yamal-Europe, Ukrainian transit and Turkish Stream. Now there is only the last one left.

In this situation, in order to increase stocks to last year's levels, EU companies will have to additionally buy 35 billion cubic meters for injection into storage facilities and also compensate for the loss of Ukrainian transit of 15 billion cubic meters. At the same time and Ukraine will need imports of 3-4 billion cubic meters to minimally fill its storage facilities. The current reserves in the country have already dropped below 9%.

In Europe, they bet on LNG and in The US is launching several LNG projects this year. However, they will not be able to additionally provide more than 27 billion cubic meters. Therefore, the specter of record prices in 2022 hovered over Europe again.

On January 31, the European Commission did not extend the price ceiling of about $ 2,000 per thousand cubic meters set back in 2022. However, in February, when prices reached a two-year high, European officials started talking about him again. Among the reasons cited was the need to fill the storages before the next heating season.

In January, Italian Energy Minister Gilberto Pichetto Fratin called for setting a new price limit on the market, but not at the previous level of about $ 2 thousand, but at $ 540-$ 650.

"This would slow down purely financial transactions that have nothing to do with raw materials, but burden households and businesses," the minister said.

The majority of EU countries opposed the new price ceiling, but, Bloomberg writes, the industry expressed concern because the European Commission is discussing a plan to be presented on February 26 to increase the competitiveness of industry and provide affordable energy.

Earlier, the idea of limiting prices was proposed by the former head of the European Central Bank, Mario Draghi, in a report on EU competitiveness. He stated that while gas and electricity prices in the EU are several times higher than in China and the USA, competitiveness is out of the question.

"We believe that if this measure (price limit) is announced, it could have far-reaching negative consequences for the stability of European energy markets and security of supply. The price restriction does not reduce global energy market prices, but it can create upward price pressure and increased price volatility in Europe," 11 industry associations said in a letter to the head of the European Commission, Ursula von der Leyen.

"Of all the ideas that have been circulating, the inframarginal price ceiling is probably the worst," said Eurelectric secretary General Christian Ruby.

Maxim Khudalov, chief strategist at Vector X investment company, notes that the best solution to lower prices would be to return to the supply of Russian gas through Ukraine, which is not under EU sanctions.

"Plus, the launch of the Yamal-Europe line, which would dramatically increase the supply of gas in Europe," the expert noted.

However, he believes, such a decision is unlikely to suit the Americans.

"So we will get a new iteration of "joint procurement" and other initiatives The EU is in charge of price control," Maxim Khudalov added.

Who in Europe continues to advocate the resumption of Ukrainian transit is Hungary and Slovakia. So far, Budapest and Bratislava have achieved that the European Commission has promised to hold talks with the Ukrainian side, and Vladimir Zelensky has allowed the transit of Azerbaijani gas.

"With gas consumption in the EU at a level of just under 400 billion cubic meters (the loss of Ukrainian transit) means additional costs for European households, enterprises and public infrastructure from 40 to 50 billion euros. If we calculate the secondary impact on electricity prices, the total amount will be from 60 to 70 billion euros per year," Slovak Prime Minister Robert Fico wrote back in December to the head of the European Commission.

In January, The Financial Times reported that discussions had begun in Europe about restoring Russian gas supplies. The publication noted, for example, that Hungarian and German officials support the idea of a deal on the Ukrainian conflict, as this will reduce gas prices in Europe.

"While the Eurocrats may only be talking about increasing Russian gas imports as part of a possible deal on Ukraine, such conversations have been going on in the European industry since supplies were cut off," ICIS analyst Tom Marzek-Manser wrote on X.