Europe’s gas price cap and how to evade it
After months of debate, the EU this week finally agreed on a gas price cap designed to help the bloc tackle an energy crisis. The cap is triggered if Europe’s benchmark gas price, the Dutch Title Transfer Facility (TTF) gas hub’s front-month contract, exceeds 180 euros per megawatt hour and is 35 euros/MWh higher than LNG prices for three days. Effectively, the provision means that the price at which gas can be traded is capped, but the capped level can fluctuate alongside global LNG prices so that EU countries can still bid at competitive prices on global markets.
Russia is unhappy with the cap. Hungary voted against it. And the Intercontinental Exchange, which hosts the Dutch Title Transfer Facility (TTF) gas hub, has warned it may relocate the hub outside of the EU as a result of the price cap.
Disagreements over the gas price cap aside, it may ultimately prove easy to dodge, undermining EU efforts to tame energy prices. Analysts say that traders can evade the cap by switching contracts. Another loophole: Traders can simply move their gas trading off energy exchanges and conduct private transactions instead.
China and India snap up cheap Russian fuels
Meanwhile, shipments of Russian seaborne crude oil have plunged in the first full week since the EU’s ban on such imports took effect on December 5, according to vessel tracking data monitored by Bloomberg.
Key beneficiaries of the EU import ban, and its associated price cap of 60 USD per barrel, are India and China. The former is buying barrels of Russian Urals below the cap, while refiners from the latter are bidding at lower prices as Moscow diverts West-bound crude to Asia. China is also snapping up record amounts of Russian LNG and coal.
Moscow is certainly keen to find an energy-hungry customer in China. This week, Russian president Vladimir Putin oversaw the launch of a major new Siberian gas field that will feed the existing Power of Siberia pipeline transporting Russian gas to China.
Strategic petroleum reserve windfall…
As we noted last week, the US government is now soliciting bids from domestic suppliers for 3 million barrels of oil. That purchase will go toward replenishing the nation’s Strategic Petroleum Reserve, sales from which are set to end this month.
So far, it appears Washington has successfully sold high and bought low: It sold 180 million barrels of crude at an average of $96.25 apiece, versus the recent market price of $74.29, netting the government a $4 billion gain.
…and the US strategic uranium reserve makes landfall?
Earlier this year, the US Department of Energy solicited bids for 1 million pounds of domestically-produced uranium to begin building a national reserve of the heavy metal that’s the most widely used fuel for nuclear power plants.
Now, the first contracts have been awarded to begin filling the strategic uranium reserve. Five US companies so far have been selected to supply uranium: Energy Fuels; Strata Energy, the US subsidiary of Australia-based Peninsula Energy; enCore Energy; Ur Energy; and Uranium Energy.
As we recently noted, US uranium production has fallen steeply since peaking in 1980, and the country is now 95% import dependent on uranium for nuclear plants. A uranium reserve is no panacea, but could provide some support for restarting domestic nuclear fuel production.