BAKU, Azerbaijan, Dec.2. Regulating all gas import prices in Europe would be counterproductive, Jeromin Zettelmeyer, director of the European economic think tank Bruegel, said in his remarks in the Scramble for Energy report of the International Monetary Fund (IMF), Trend reports.
He believes that such a decision will make it impossible to attract sufficient gas to the European Union and lead to even higher prices.
“A cap only on Russian gas, aimed at cutting the country’s gas profits while lowering costs for Europe, might make more sense, although that approach is not without risk: Russia cannot easily redirect its gas supplies elsewhere, so its commercial interest would be to continue supplying Europe, even at lower prices. However, Russia has already acted against its own commercial interest by slashing supplies to Europe by 80 percent. If it retaliated by stopping the remaining 20 percent, that would make matters worse,” said Zettelmeyer.
Price cap proposals come in two stripes: limiting the price of gas imports and putting a lid on wholesale prices within the European Union.
“A third option is a cap on all transactions at Europe’s gas hubs and on over-the-counter trading and exchanges. Such limits would apply to many longer-term contracts—including those with Russian state-owned gas giant Gazprom—that are indexed to gas hub prices. To ensure that such a cap wouldn’t compromise Europe’s ability to attract LNG, a contract-for-difference mechanism could pay importers the difference between the international price and the European price. The funds could come from the EU budget. This would result in lower wholesale gas and electricity prices. Taxpayers would have to pick up the tab, but they would be more than paid back in the form of lower prices and subsidies,” he explained.
---
Follow the author on Twitter: @Lyaman_Zeyn