Russia’s state-backed energy giant Gazprom has warned that any plans to impose a price on Russian gas exports, echoing a similar threat made by Russian President Vladimir Putin earlier this year. This renewed threat to freeze Europe comes as draft proposals show that the European Commission is set to introduce a last-resort “dynamic” price cap for natural gas, in a bid to cut slash energy bills. Over the past year, Russia has been squeezing gas supplies flowing to Europe, in retaliation to Western sanctions over its invasion of Ukraine. This has sent wholesale prices of gas to record levels, as countries scramble to shore up their gas supplies.
On Sunday, Gazprom’s CEO Alexei Miller said that the energy behemoth would consider a price cap as a violation of existing contracts, and would end supplies flowing into Europe.
He told state television: “Such a one-sided decision is of course a violation of existing contracts, which would lead to a termination of supplies.”
This echoes a similar threat made by Putin last month, who said: “Will there be any political decisions that contradict the contracts? Yes, we just won’t fulfil them. We will not supply anything at all if it contradicts our interests.
“We will not supply gas, oil, coal, heating oil — we will not supply anything. We would only have one thing left to do: as in the famous Russian fairy tale, we would let the wolf’s tail freeze.”
“Those who are trying to impose something on us are in no position today to dictate their will. They should come to their senses.”
Such a move would be devastating for the global economy, sending gas prices even higher, as Russia is the world’s second-largest oil exporter after Saudi Arabia and the world’s top natural gas exporter.
According to draft proposals, the European Commission is set to introduce plans to impose mandatory limits on the degree to which energy traded prices can fluctuate in a single day.
However, such plans may be difficult to implement as they will need to be agreed upon by EU governments, many of whom are heavily dependent on Russian gas, and would fear a complete cut-off.
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According to this plan, the European Agency for Cooperation of Energy Regulators (ACER) would be responsible for producing a price benchmark by March 23 for liquefied natural gas as the EU is ramping up its exports from other suppliers.
The EU executive would “as a last resort” propose establishing a market “dynamic” price under which natural gas transactions can take place in the Dutch TTF spot market under specific conditions.
The draft noted that such measures should not affect the security of energy supply, nor should it lead to an increase in gas consumption, nor affect the orderly functioning of energy derivative markets.
Speaking after Putin’s threat to block supplies in September, EU Commission President Ursula von der Leyen said: “We must cut Russia’s revenues which Putin uses to finance this atrocious war against Ukraine.”
This proposal is far lower than the bloc-wide gas price cap that was called for by 15 EU countries, by opposed by others such as Germany, Austria and the Netherlands, who argue that such caps could lead to a gas shortage and fail to incentivise energy saving.
Georg Zachmann, an energy expert at think tank Bruegel said: “As a result of falling gas prices, this proposal shows that the appetite for ambitious reform, such as a price cap, is fading.”
A loss of Russian gas would deal a devastating blow to the global economy, as the International Energy Agency has already warned that the world in the brink of recession following OPEC’s move to cut oil production.
They wrote: “The Opec+ bloc’s plan to sharply curtail oil supplies to the market has derailed the growth trajectory of oil supply through the remainder of this year and next, with the resulting higher price levels exacerbating market volatility and heightening energy security concerns.
“With unrelenting inflationary pressures and interest rate hikes taking their toll, higher oil prices may prove the tipping point for a global economy already on the brink of recession.”