Recently, voices have been heard more and more often calling for a price ceiling (ceiling) not only for natural gas, but also for oil for various reasons for each type of fuel. With regard to natural gas, the 15 EU countries in a joint letter from their governments (September 28) ask for a wholesale gas price ceiling in an attempt to tame electricity prices as they are directly affected by natural gas. Since the price of electricity in the European daily market is determined by the highest price cap of the system, which is usually the price of gas.

As for oil, in June 2022 the G7 recently raised the need for price caps to limit Russian oil exports to Europe and beyond. In both cases, the requirement to set a price ceiling for gas and oil is contrary to the established way of determining prices through energy exchanges, mainly NYMEX in New York and ICE in London in the case of oil, while in the field of gas, the Dutch gas trading hub TTF stands out (Title Transfer Facility) – at the same time, a number of other key gas trading hubs operate, mainly in Europe, but also in the USA (Henry Hub). With the prices resulting from the exchange of energy directly affecting the purchase and sale of natural cargoes of oil, LNG or volumes of gas transported through pipelines, as they are used as a basis, for example. Brent ±5% or TTF ±10%.

Recall that oil exchange trading began in 1983 through the NYMEX in New York after two oil crises (1973, 1979) in an attempt to weaken OPEC in order to put an end to the irrational and arbitrary practice of the main producers of the Gulf countries in setting oil prices. With the start of trading in oil contracts on the NYMEX and a year later (1984) on the London Metal Exchange, oil prices began to decline significantly, as pricing was removed from the exclusive control of producers and transferred to a market where they could participate equally all: producers , importers and traders.

In Europe, this has been strongly encouraged by the EU over the past ten years. within the framework of the relevant Directive (Directive 96/30 / EC), the creation of gas trading hubs, so today, in addition to TTF, ten such gas hubs are successfully operating in countries such as the UK (NBP), Belgium (Zebrugge), Italy (PSV), France (PEG), Austria (VTP), etc. The last gas hub in Greece, known as the Hellenic Natural Gas Trading Platform, was launched in March 2022 by the Hellenic Energy Exchange (HEXE) with the assistance of DESFA. The ultimate goal is to maximize commercial transactions and through them achieve competitive prices for the benefit of consumers, households and businesses.

The main conditions for the successful creation and operation of a gas hub are, on the one hand, the sufficiency of a sufficient amount of gas in the immediate geographical area covered by the gas hub, i.e. achieving sufficient liquidity, and on the other hand, the availability of appropriate infrastructure. In the case of Greece, these conditions are currently satisfied by the operation of the TAP pipelines, the main gas pipeline from Russia (today via TurkStream and Bulgaria), the Greek-Turkish ICGT gas pipeline and finally the Greek-Bulgarian IGB, as well as the LNG terminal at Revitus. In a recent assessment of European gas hubs by EFET, the Greek hub received the highest rating among gas hubs currently operating in North America. Europe.

After 15 years of EU efforts. to reform the gas market in Europe by promoting connecting pipelines, storage facilities and creating a network of gas trading centers so that prices arise that will reflect what is happening in the markets, this is logical and next for the Commission has strongly responded to proposals to set a price ceiling arising in the TTF , as well as in other European centers. Because the establishment of the ceiling in practice abolishes the purpose and function of gas trading centers, since it predetermines the limits of price fluctuations. The same applies to oil, as the ceiling proposed by the G7 undermines the free trading of futures contracts on energy exchanges in the US, Europe and Asia. In addition, the gas restriction in practice creates a supply security risk, as it will prevent LNG and crude oil from flowing to Europe (which will now be considered a low price zone compared to Asia).

NetZero50’s unattainable goals are fatally leading to more energy dependency and even more price increases.

No one disputes that there is a problem in the European energy market related to the relationship between electricity and natural gas prices, so the efforts of the EU and its advisory bodies have focused on the restructuring of the electricity market (i.e. the target model), and not the natural gas market. In the upcoming review of the gas market model, it would be useful to evaluate the introduction of circuit breakers, following the standards of the stock markets, to stop trading when certain thresholds are exceeded.

In any case, the very high prices that have appeared recently on TTF and elsewhere are indicative of the atmosphere of uncertainty and uneasiness that characterizes markets with risk discounting and overpriced assumptions by suppliers seeking to secure sufficient gas or electricity. These forecasts take into account current supply and demand data, as well as geopolitical factors, and in this sense, energy exchanges reflect market trends and conditions. Ceiling overlay distorts reality.

The opposition of most European countries to the exploration and production of hydrocarbons (which together with coal cover 69.3% of the EU’s energy needs: 27 according to Eurostat 2020), influenced by EU green policy, at a time when Europe is 60%+ dependent from the import of hydrocarbons, indicates the complete weakness of the EU. correctly assess the emerging and negative geopolitical situation for it. With such a paradoxical attitude of the EU. to cover up a large dose of hypocrisy and cynicism, as he aims for more imports of hydrocarbons (which, however, produce emissions in the countries from which they come), but does not want production within the EU. However, at a time when the European continent is facing severe energy shortages, religious commitment to the (unattainable) NetZero50 goals and the concomitant encouragement of ever higher gas imports is fatally leading to greater energy dependency and even higher prices.

For all the above reasons, in the current period, the priority is to strengthen energy security, reduce inflation and normalize the economy. However, without increasing domestic energy production from all sources, regardless of fossil fuels and RES, this cannot be achieved.

* Mr. Kostis Stambolis is President and CEO of SE Energy Institute (IENE).