EU After imposing the 9th round of sanctions on Russia, there is almost no room for further European pressure on Russia in terms of economics. The EU energy ministers held a meeting a few days ago. After some discussions, the natural gas price limit was finally set at 180 euros.
This price limit mechanism is called the "market correction mechanism", which will last for one year and will take effect from February 15, 2023. When the natural gas price exceeds 180 euros/MW for three consecutive days and is more than 35 euros more expensive than the global LNG , then this mechanism will be triggered. The result of the triggering mechanism is also very simple, which is to first prohibit natural gas trading in the EU. When the natural gas price is lower than 180 euros/MW for three consecutive days, the mechanism will be automatically lifted.
Judging from the stringent conditions for the mechanism to be triggered, the EU was very rigorous when discussing this resolution. Although the EU hopes to use this method to avoid the impact of excessive energy prices, in fact, Europe's "bad move" is still likely to bring greater backlash to itself.
Vice Chairman of the Security Council of the Russian Federation Medvedev recently published an article to explain this. He satirized the EU's decision as "stupid." The reason is that whether it is natural gas or oil , the basis for Europe to set upper limits on these energy prices is not economic logic, but subjective "hatred". This will not have any actual effect on regulating the market, but is just a way to stimulate Russia.
This is indeed the case. We all know that the price of goods fluctuates around the value and is affected by the relationship between supply and demand. When supply exceeds demand, the price will naturally decrease. Then when Europe's energy prices are at a high level, it chooses to trigger the "market correction mechanism", that is, it stops buying energy, and the market demand naturally decreases. At this time, it changes from seller's market to buyer's market , and prices will naturally drop. But this matter did not arise because the EU introduced this "market correction mechanism". It is an eternal market law that will exist even if Europe does not introduce this mechanism.
Another point is that whether it is oil or natural gas energy, these are non-renewable. There are only so many on the earth, but every country, every company, and every person needs to use them while they are alive. They are always being consumed. In other words, if Europe does not buy, other countries will buy. It is true that Europe is a huge energy import market, but it is not the market itself, and it is not enough to shake the entire market order.
Finally, this mechanism controls transactions in the TTF trading market, but there is more than one way to buy things. People who really need it will find a way to buy natural gas no matter what. OTC trading will increase, and even the price will be higher. It is very likely that the money Europe wants to save will be spent in this way.
Whether the natural gas price limit will hit Russia is difficult to say, but as the conflict between Russia and Ukraine continues and is difficult to stop, it can be regarded as a way for Europe to explore for itself. Whether it is useful or not, it really needs to be tried first to know.
