Possibility?

The EU is ready to tighten sanctions against Russian energy. The G7 countries are discussing the possibility of introducing a price ceiling for Russian oil from December, and from February for oil products. The head of the European Commission, Ursula von der Leyen, also announced her readiness to introduce similar restrictions on the price of gas. So far, there has been no market reaction to the latest statement – gas prices continued to decline, probably due to the fact that the market does not believe in the feasibility of these threats, analysts say. The introduction of a price ceiling on Russian oil also inspires no more confidence: this has not yet affected prices.

Europe shuts down gas…

Europe is ready to set an upper price limit for pipeline gas from the Russian Federation, the head of the European Commission, Ursula von der Leyen, said on September 2. This measure, in her opinion, “should prevent attempts to manipulate the EU energy market by Russian President Vladimir Putin.” The official explained that the restriction of gas prices could be proposed at the level of the leadership of the currency bloc. Usually such decisions should be taken by all EU member states unanimously.

The Russian Federation reduced gas supplies to Europe after the start of the military operation in Ukraine, as a result, gas prices rose to historical highs. On September 3, gas supplies via the Nord Stream pipeline were supposed to resume after maintenance, but late in the evening Gazprom announced that significant malfunctions had been identified and the gas pipeline would not work without fixing them.

Gazprom did not comment on Ursula von der Leyen’s statement. However, Presidential Decree No. 172 (on the transition to paying for Russian gas supplies to “unfriendly” countries in rubles) already provides for the possibility of stopping gas supplies if the consumer does not pay in full. Deputy Chairman of the Security Council of the Russian Federation Dmitry Medvedev, in response to the statement of Mrs. von der Leyen, said that Europe in this case would lose supplies from the Russian Federation. “It will be like with oil. There will simply be no Russian gas in Europe,” he said.

Spot quotes did not react in any way to the words of the head of the European Commission (October futures for TTF fell by 13.6%, to $ 2.18 thousand per 1 thousand cubic meters), from which we can conclude that the market does not really believe in the feasibility of this initiative, considers Maria Belova from Vygon Consulting. “But if and when the ceiling is set and Gazprom refuses to supply, the reaction will be instantaneous. Let’s remember how the market was in a fever in March only on expectations of a halt in supplies, how prices rose every time the flow through Nord Stream was reduced, ”she recalls.

High gas prices have already led to a drop in demand in the EU, according to the recommendation of the European Commission, the countries of the union should reduce consumption by 15% this winter. This will make it possible to maintain reserves in UGS facilities, which this year, two months earlier than planned, by September 1, reached the level of 80%. The EU is actively buying gas from alternative suppliers: Norway supplies more pipeline gas to the continent than the Russian Federation, the United States has increased LNG supplies many times over.

Sergey Kapitonov, an expert at the Center for Energy Transition and ESG Skoltech, notes that with a 15% reduction in gas consumption, peak sustainable demand in the EU in the winter of 2023 may be in the range of 1.6-2.2 billion cubic meters per day (sustainable peak demand in the most frosty winter days was 1.9–2.7 billion cubic meters). He clarifies that, given the growth of the LNG market opportunities (the maximum daily LNG supply to the European GTS reached 400 million cubic meters per day this year), and assuming that gas from Russia will not be supplied to Europe, but other suppliers (LNG , Norway, North Africa, domestic production, Azerbaijan) will supply the maximum, and UGS facilities will run out of steam, the European balance is generally closed on peak days.

“However, a lot will depend on real weather conditions, the situation on the LNG market – the American Freeport LNG plant is not yet operating, and Asia, with the onset of winter, will begin to compete more actively with Europe for LNG supplies,” the expert says, emphasizing that the gas balance will never is not made by a thread, but in the event of a really cold winter and the slightest interruption with suppliers alternative to Gazprom, on some days Europe could really face a shortage.

…and puts pressure on oil

The fact that the G7 countries have agreed on the introduction of a price limit on the purchase of Russian oil, the British government announced. “We will limit Putin’s ability to finance his war with oil exports by banning services such as insurance and the provision of finance to ships carrying Russian oil at a price above the agreed limit,” British Chancellor of the Exchequer Nadeem Zahavi said on the website. Previously, the US, Canada and the UK, members of the G7, imposed an embargo on oil from the Russian Federation, and at the end of the year, restrictions on sea supplies will also enter the EU. The UK is also calling for an expansion of the coalition of countries imposing a ceiling on the price of oil from the Russian Federation. On September 1, Deputy Prime Minister Alexander Novak threatened not to sell raw materials to customers who would join such sanctions.

Such experience has been known to world practice since 1996, when a restriction was introduced on the trade in Iranian oil, says Ekaterina Orlova, head of the legal practice of CM Grace Consulting.

The UN, acting on the basis of consensus, created a settlement scheme through special accounts, the expenditure part of which could be directed by the Iranian government only for humanitarian purposes. This option of work was ineffective, Iranian deliveries continued with settlements bypassing this type of account.

In the current situation, reaching a consensus will be quite difficult: China, India, Pakistan and African countries, which are increasing supplies of Russian oil, will need to join the G7 statement, Ms. Orlova believes. One of the potential mechanisms is the issuance of licenses for the transportation and insurance of the transportation of Russian oil, for which it will be necessary to disclose the details of the transaction.

The size of the regulatory discount to Urals could be 30-40%, and at such prices, the cost of buying oil with the introduction of the ceiling is still higher than profitable production even at mature fields in Western Siberia, independent expert Dmitry Kasatkin believes. According to Sergey Kondratyev, deputy head of the economic department of the Institute of Energy and Finance, if the price ceiling is set at $60 per barrel, budget revenues could be reduced by about 20%, and losses could be even greater if the physical volumes of production and exports decrease.

However, according to experts, the introduction of a price ceiling for Russian oil is hardly feasible. According to Maria Belova from Vygon Consulting, this measure looks strange in the context of the EU embargo on Russian oil. Judging by the statements, the price ceiling, like the embargo, will apply to maritime supplies, she said, and the imposition of it looks like a “political attempt to save face” if the embargo does not work. The market does not seriously believe in the implementation of this measure – the price of Brent has hardly grown these days, the expert continues, and it is also unclear how such restrictions will be controlled.

“The G7 group of countries does not have its own legislative body and is not an international organization as such,” says Irina Chebotareva, head of the practice of resolving inter-jurisdictional disputes, head of the K&P.Law office in Cyprus. sovereign states separately, based on their internal procedure. In fact, she notes, such an agreement is only a proposal for the participating countries and a signal for other foreign states who may be affected by such initiatives. It is difficult to say what format the further work will take, most likely, this is the subject of cooperation between national authorities (ministries of finance), Ekaterina Makeeva, head of the sanctions practice at A-PRO, notes, citing an example of such consolidated work in another area – the creation of a special group to freeze assets Russian oligarchs and coordination of this work with the G7.

Tatyana Dyatel, Dmitry Kozlov