Yuliia Svyrydenko: EU decision to adopt gas price ceiling is a systemic change that allows to cut russia off the gas market faster

The EU countries have reached an agreement to cap natural gas prices at EUR 180 per MWh. First Deputy Prime Minister – Minister of Economy of Ukraine Yuliia Svyrydenko told about the consequences of such decision.

“The good news is that EUR 180 per MWh is significantly lower than the initial proposal of the European Commission – EUR 273 per MWh. At the same time, while the political debate continued, the gas price in the EU decreased to the level of EUR 117 per MWh, and today the TTF price was even EUR 107 per MWh,” Yuliia Svyrydenko explained.

According to the Minister of Economy, this instrument will start working from February 1, 2023, and price caps will become applicable starting February 15. This mechanism is intended to serve as insurance against price hikes.

“The gas price ceiling has a different nature than the oil price ceiling. Formally, it is not an instrument of sanctions. Its main purpose is to protect against excessively high prices. But the introduction of the price adjustment mechanism opens the possibility for future sanctions and ousting russian gas from global markets.

The fact is that russia’s long-term dominance on the EU gas market has led not only to quantitative prevalence, but also to the pricing on the market being too sensitive to the russian factor. Ultimately, this led to a situation where in the summer of 2022 prices in the EU were 7 times higher than in the United States,” said Yuliia Svyrydenko.

In practice, it is assumed that the adjustment mechanism will be applied to a specific gas trading instrument – TTF – which is central to the pricing system in Europe and the most sensitive to manipulation.

“But at the same time, it is a financial instrument that is also linked to a number of derivatives. Therefore, this is not only an energy issue, but also an issue of functioning of financial markets.

Therefore, there is a risk that a sharp and excessive intervention can lead either to a limitation of physical supplies, loss of liquidity of traders in financial instruments, or to escape of trading to other marketplaces,” said Yuliia Svyrydenko.

Therefore, any decision to apply this mechanism will be supported by analysis and positions of the EU Agency for the Cooperation of Energy Regulators, the European Securities and Markets Authority, the European Central Bank, etc.

“But even all the difficulties and risks will not outweigh the main thing – russian manipulations must be eliminated, and russia must be deprived of the revenues that finance the war. And the current decision is a systemic change that allows to cut russia off the gas market faster and more effectively,” concluded Yuliia Svyrydenko.