On September 7, European Commission President Ursula von der Leyen proposed five strategies to deal with the energy crisis, which will be discussed at the EU Energy Ministers' Meeting on the 9th, and those who are quicker may have a final decision next week.
The most notable of these is the proposal to impose a price cap on Russian natural gas, in an attempt to control European energy prices while reducing Russia's revenue from gas sales.
On the same day, Russian President Vladimir Putin, who was attending the Eastern Economic Forum in Vladivostok, criticized it as "another kind of stupidity", threatening that Russia would not supply gas, oil, coal, heating oil.
Setting price limits on Russian energy exports has been a proposal of Italian Prime Minister Mario Draghi.
After months of wrangling, the chance finally came to fruition after the G7 countries announced price caps on Roscosmos last week.
However, since Russia has already sold oil to Indo-Pacific countries such as China and India at a discounted price of about $30 and a shipping journey of nearly 30 days, the price cap on Russian oil can only have a marginal impact at best.
Is the price limit actually an embargo?
Natural gas, however, is another matter.
Russia's natural gas exports are mainly transported by pipelines, and it lacks the output capacity of liquefied natural gas. Almost all gas pipelines are destined for Europe, and only one China-Russia eastern natural gas pipeline enters China via Siberia.
In terms of transportation capacity, the 38 billion square meters (BCM) of the eastern route is far less than that of Europe. The annual gas transmission capacity of Russia-Germany Nord Stream 1 and 2 is 55 BCM, passing through Yamal, Belarus. (Yamal) pipeline up to 32.9 BCM, West Siberia pipeline through Ukraine 32 BCM, Turkey Stream 31.5 BCM, Blue Stream through Turkey 16 BCM.
According to 2021 data, nearly 70% of Russia's natural gas exports are exported to Europe, amounting to 155 BCM.
Comparison of European gas deliveries in 2021 and the first half of 2022.
(Bruegel)
The logic of the “Gazprom price cap” is to use Europe as the primary export market for Russian natural gas, forcing Russia to continue exporting natural gas to Europe with the intention of profiting “something is better than nothing” under pressured prices.
Putin acknowledged this at the Eastern Economic Forum, pointing out that Russia's pipeline gas has a major tier gap in competitiveness compared to seaborne LNG.
However, Russia's Putin authorities are clearly ready to completely stop the supply of natural gas to Europe.
As von der Leyen said, 40% of the natural gas in Europe came from Russia in the past, but today the number has dropped to 9%.
On a weekly supply basis, the EU's Russian gas imports are more than 75 percent lower than the lowest average for the same period in 2015-20.
Just as Russia will not supply oil to countries that implement the "Russian oil price cap", the interruption of Gazprom seems to be the inevitable result of the EU's price cap on Gazprom.
Therefore, if the EU really implements the "Gazprom price limit", the policy it actually implements is actually a "Gazprom embargo".
Putin: The picture shows that on September 7, 2022, Russian President Vladimir Putin attended the 2022 Eastern Economic Forum in the Russian Far East city of Vladivostok.
(AP)
two sides of a coin
At present, the "Gazprom price limit" has not been agreed by most countries.
On the one hand, France has expressed its support for the price limit of Gazprom, on the other hand, Germany, Hungary, Slovakia, the Czech Republic, etc. all have doubts or opposition.
Poland, Italy and other countries believe that a price limit should be imposed on all natural gas imports-because the EU always has to bid with global buyers for natural gas purchases, and European allies such as Norway and the United States are also natural gas exporters, so the "comprehensive price limit" pricing It must be higher than the "Russian gas price limit", and its restrictions not specifically targeting Russia can also reduce the risk of Russia's complete shutdown of natural gas.
Germany's skepticism mainly comes from the consideration of countries in Central and Eastern Europe that depend on Russian natural gas.
With the Russian-German Nord Stream 1 completely out of service, Germany has virtually no natural gas supply from Russia.
However, the Czech Republic, Hungary, Slovakia, Romania and other countries still rely on the supply of Gazprom. If Russia's supply is interrupted, Germany may have to "suffer" to export its only natural gas reserves to these countries.
The EU's positive and negative stance on the "Gazprom price limit" looks like two sides of the same coin.
Supporters believe that Russia's natural gas supply has already dropped by more than 70% anyway, and even if Russia stops supplying due to price caps, the EU can afford the price.
Opponents believe that, anyway, Russia's natural gas supply has already dropped by more than 70%. Even if the EU implements price caps, it will have no practical effect, and it is more likely to further reduce the natural gas supply in Europe.
This mirror-like debate actually reflects whether Europe can survive the energy crisis this winter under the background that Gazprom’s supply has already been greatly reduced, and whether or not “Gazprom price cap” may already be a trivial matter. .
EU natural gas futures prices have fallen in recent days, but they are still several times higher than they were a year ago.
(Trading Economics)
"Seeking yourself" is more important
In addition to the "Gazprom price cap", Von der Leyen also proposed four other measures: (1) Mandatory reduction of electricity demand during peak hours; (2) Limit the wholesale electricity price of low-cost power generators, which is rumored to be set At the level of 200 euros per megawatt hour (MWh) (more than 50% lower than the current level); (3) implement a "windfall profit tax" on fossil fuel companies that are making high profits; (4) provide financial assistance to power supply companies .
According to the political news site POLITICO, restrictions on wholesale electricity prices, as well as financial assistance for electricity companies, have been agreed by countries.
According to an analysis by Brussels think tank Bruegel, reducing natural gas demand and reducing electricity demand are unavoidable and necessary actions in Europe, both from the perspective of other sources of natural gas supply that are available and from the perspective of other power generation capacity available within the EU. .
However, due to the conflict between reducing demand and reducing energy prices (that is, people's livelihood expenditure), and reducing prices is often more politically feasible, many countries' respective policies to deal with the energy crisis are also dominated by various subsidies and price-limiting policies. The reduction in demand is less than ideal – for example, in Italy, which has a lot of support for household energy prices, natural gas demand will increase slightly in the first half of 2022; The proportion of power generation increased from 17% in the first half of last year to 23%.
Bruegel's analysis of the data shows that the rise in household energy bills is roughly proportional to the reduction in the nation's natural gas demand.
(Bruegel)
In July this year, although the EU countries reached an agreement on natural gas demand reduction, the demand reduction requirements are generally only voluntary and difficult to enforce, and many countries have also obtained various reductions due to their own circumstances. Relief is required.
Judging from the current discussions on Von der Leyen's five moves, it is still the main theme of EU countries to reduce prices while reducing demand.
In addition to reducing demand, according to Bruegel's analysis, on top of the gas supply crisis, the EU still has many internal problems.
One is the uncoordinated storage of natural gas by countries.
Although the European Union has reached 80% of its gas storage capacity two months ahead of schedule, some countries, such as Austria, have not reached the target, which seems to ignore the point that a country's natural gas storage can be used for regional supply.
The second is the inconsistency in supply infrastructure policies.
For example, most of Germany's natural gas power generation facilities supply electricity and heat at the same time, so regardless of whether the nuclear power plant that was originally planned to be shut down this year continues to generate electricity or not, its natural gas power generation facilities will also continue to operate, without considering the possibility of maintaining the operation of the nuclear power plant. Having Germany export electricity to other countries has the potential to reduce gas demand in other countries.
The third is the inconsistency of gas transmission capacity.
For example, Portugal and Spain, which account for nearly a quarter of the EU's LNG processing capacity, do not have the ability to supply gas to France; and France and Germany also have different natural gas safety standards, preventing French gas from being transported to Germany.
Compared with the "Gazprom price cap" proposal, which has limited success and may even lead to interruptions in the supply of Gazprom, the best way for the EU to survive the energy crisis this winter is to turn its back on itself, rather than point its sword to Russia.
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