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Gazprom chief threatens total halt in EU gas supply if price cap is imposed

Highlights

Would be a 'violation' of contract terms: Miller

EC to present new package of energy crisis proposals

Proposals could include 'dynamic price corridor'

  • Author
  • Stuart Elliott
  • Editor
  • Adithya Ram
  • Commodity
  • LNG Natural Gas
  • Topic
  • Europe Energy Price Crisis War in Ukraine

The head of Russia's Gazprom threatened Oct. 16 to halt gas supplies to the EU if the bloc imposed a price cap on the commodity.

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Gazprom CEO Alexei Miller, speaking on state television and cited by news agency Tass, said Gazprom was guided by contractual terms in its supply arrangements with EU buyers and that a price cap would be a breach of contract.

"Such a unilateral decision is definitely a violation of the essential contract terms, which will entail the suspension of supplies," Miller said.

The European Commission is due to present a new package of proposals Oct. 18 as part of efforts to combat high gas prices, which are expected to include a form of gas price intervention.

Russia has already sharply reduced gas deliveries to Europe in 2022, with exports halted via the Nord Stream and Yamal-Europe pipelines.

It now delivers gas to Europe only via the Sudzha entry point on the border with Ukraine and the TurkStream pipeline.

However, a number of major Gazprom customers in the EU are still supplied with Russian gas via the two routes including in Hungary, Austria, and Italy.

Lower Russian supplies sent European gas prices to all-time highs in late August though prices have come down sharply as storage sites across the EU were filled to close to capacity.

Platts, part of S&P Global Commodity Insights, assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh Aug. 26. It was last assessed at Eur140.50/MWh Oct. 14.

Price corridor

The EU has been discussing different forms of gas price cap mechanism for weeks.

Talks have focused on a potential general cap on the wholesale price, a cap on the price of imported gas, including from Russia, and a cap just on the price of gas used in power generation.

On Oct. 12, the EU's energy commissioner Kadri Simson said new proposals would be presented Oct. 18 ahead of the next EU heads of state summit scheduled for Oct. 20-21 in Brussels.

Member states remain split on how to implement a gas price cap amid concerns that capping the price of wholesale gas could reduce the need to cut demand, which could lead to physical gas shortages.

Any intervention in the gas market would therefore require further reductions in demand, Simson said Oct. 12.

One option would be to trigger the mandatory 15% gas demand cut already agreed on a voluntary basis by member states, but further measures may be needed, she said.

Another mechanism that could potentially be proposed is a "dynamic price corridor" that would be more flexible and allow TTF prices to move within a certain range.

Earlier in October, EC President Ursula von der Leyen said a cap on gas prices would have to be designed properly to ensure security of supply.

She added it would be a "temporary solution to cater for the fact that the TTF -- our main price benchmark -- is no longer representative of a market that includes more LNG today."

The Platts DES Northwest Europe Marker for LNG supply in November was assessed at $19.89/MMBtu Oct. 14, less than half the value of the TTF month-ahead assessment of $40.14/MMBtu.

In the week ended Oct. 14, five EU states -- Greece, Italy, Belgium, the Netherlands, and Poland -- repeated their call for a cap on the wholesale gas price as a way to address high prices.

They also called for a new benchmark against which the price of gas would be linked in long-term contracts.

Purchasing platform

Speaking Oct. 12 on behalf of the EU Presidency, Czech Industry Minister Jozef Sikela said he expected both an alternative gas benchmark and a joint gas purchasing platform to be in place for the next heating season.

In a non-paper published earlier this month, Germany and the Netherlands called for a swift implementation of a joint gas purchasing platform.

They backed EC efforts to negotiate deals with non-Russian gas suppliers, which they said were preferable to a general cap on gas prices, which could compromise security of supply.

An alternative would be to consider "circuit breakers" or trading halt mechanisms to contain extreme volatility in energy markets, as suggested in September by the European Securities and Markets Authority.