Gas prices on the largest European trading platform TTF fell to $1,126 per thousand cubic meters during trading on Tuesday, the lowest value since mid-November (then prices were at local lows due to abnormally warm weather), according to trading data . A new round of reduction is due to the adoption of the mechanism of marginal gas prices at the pan-European level, according to which the ceiling is set at $1.9 thousand per thousand cubic meters.
On the evening of December 19, representatives of the EU countries agreed on the introduction of a gas price ceiling on the territory of the entire union. The ceiling is set at €180 per 1 MWh (approximately $1,900 per 1,000 cubic meters). The European authorities thus want to limit the consequences of sharp jumps in gas prices for their own economy. The mechanism will only work if the futures on the TTF index with an expiration in the next year exceeds the ceiling for three days. At the same time, the ceiling will not work if the difference between the futures and the price of liquefied natural gas (LNG) in Europe does not exceed €35. This restriction was created to ensure that LNG supplies to the European region continue to flow, and not go to Asian markets.
The restrictions come into force on February 15, 2023 and will last exactly one year. The mechanism will not affect the OTC gas market. At the same time, it is likely that the mechanism will not work in principle in accordance with the established procedure: the ICE international exchange, which operates the TTF hub, has threatened to transfer trading from Europe if the introduced ceiling threatens the company's business. The main risk is a potential wave of margin calls from players who expected a sharp rise in gas prices and bought forward contracts. The European Commission also assured ICE that in the event of a threat to exchange trading, the ceiling would be lifted.
The Russian side has traditionally reacted skeptically to Europe's decision. Presidential spokesman Dmitry Peskov said the price ceiling for trade was unacceptable. “This is a violation of the market pricing process, an attack on the market process, any reference to the ceiling cannot be accepted,” he said . Unlike the oil ceiling, which applies only to Russian oil, the gas ceiling applies to all gas supplies to the EU. Gazprom declined to comment, however, the Russian company reduced its supplies to a minimum in the fall, while the European authorities, even in the baseline scenario, assume that Gazprom will not be counted on in 2023.
Most analysts see potential risks for Europe itself in the new mechanism. The price cap limits the potential margin of LNG suppliers to the European market, thus reducing its attractiveness in favor of Asian markets, where China and Japan have already announced their intention to increase LNG supplies in 2023. This situation threatens Brussels with a potential shortage of gas and an inevitable increase in quotations. The current losses of the European economy from the energy crisis are estimated at $ 1 trillion, a sharp increase in gas demand in the world can significantly increase these losses.