Vzglyad.az had an interview with the chief consultant of the Center for Foreign Policy Studies of the National Institute for Strategic Studies, Candidate of Economic Sciences Ivan Us about the recent situation in the gas market. 

- How would you evaluate the situation in the gas market over the past 3 months?

- Over the past three months, the gas prices in Europe have been fluctuating. As you know, the exchange price of gas in Europe exceeded a record $2,200 in December last year. In early February, gas prices in Europe fell below $900 per thousand cubic meters. The situation with prices on the gas market was like an "American rally", which attracted the attention of many analysts of the financial and commodity markets, as well as ordinary people. And taking into account many factors, ranging from the dynamics of the world economy and global politics to ordinary speculation in futures contracts, this topic has not left the front pages of the mass media. 

- What determines those dynamics in the gas market? Why do gas prices break records in Europe?

-Primarily, it is an overestimation of the negative impact of the coronavirus pandemic on the global economy, which led to an additional inflow of $3 trillion. It resulted in a sharp rise in commodities, including gas. Secondly, it is a faster recovery of economic activity in East Asia, which has led to rising demand for gas in this region with inevitable attention of gas traders. Thirdly, it is the policy of the Russian Federation to abandon the practice of supplying gas to Europe based on market needs, and not purely within the framework of the figures specified in the contracts. In addition, all these factors allowed speculators in the futures markets of Europe to speculate for price rise. All this together led to record numbers in prices.

- In your opinion, will the rally of gas prices in Europe continue for long? 

- If the above-mentioned facts led to a sudden rise in the gas price of Europe, then this price was sharply reduced in a subsequent manner. Primarily, the rise in the prices motivated the world gas traders to turn around tankers that were going to Asia and send them to Europe. It was followed by the active steps taken by the US as a response to creation of tensions by the Russian Federation in relations, as well as various ultimatums from its side. Not in words, but in deeds, it started developing a strategy to provide Europe with gas without the participation of the Russian Federation itself.

On the last day of January, Washington hosted a meeting between the President of the United States and the Emir of Qatar, at which the possibility of replacing Russian gas with Qatari gas on the European market was discussed. The result of such actions was that the Russian Federation, represented by ‘Gazprom’, doubled the transit of gas through Ukraine to Europe on the first day of February of this year. While the volume of gas pumped through the territory of Ukraine was 54 million cubic meters per day in January, this figure was 108 million cubic meters per day on February 1.

I am confident that owing to those mentioned factors, the rally of gas prices in Europe will not last long, and the situation will become stable before the end of February.

- How do you explain the EU's refusal from long-term contracts in favor of spot contracts?

The increase in gas supply options to Europe leads to growing levels of competition. Consequently, more opportunities arise to receive certain preferences. In the context of a downward trend of prices, countries perceive that the availability of long-term contracts can be unprofitable. So, they prefer spot contracts.

- The EU discusses the possibility of a swap deal with the United States, Qatar, and Azerbaijan to avoid interruptions in gas supplies to Europe, which, particularly, can be caused by the situation around Ukraine. What role can be assigned to Azerbaijan in the settlement of the gas crisis in Europe? How do you assess the prospects for Azerbaijani gas supplies to Eastern Europe? 

- Indeed, in the previously mentioned strategy promoted by the United States to minimize Europe's dependence on gas supplies from the Russian Federation, along with the United States itself (over the past couple of months, about 40 LNG tankers from the United States entered European ports) and Qatar, there is also Azerbaijan. It is the main reason that the EU Commissioner for Energy is expected to visit Baku to agree on increasing gas supplies from Azerbaijan via the Trans-Adriatic gas pipeline. The EU Commissioner for Foreign Affairs and Security Policy mentioned Azerbaijan in his blog (along with the US and Qatar) as one of the main sources of gas supply to the EU. Thus, Azerbaijan has fairly good chances to become a significant player in the European gas market.

- What awaits the European gas market in 2022, in your view?

The fate of the gas market will mainly depend on the geopolitical situation in 2022. If the Russian Federation abandons aggressive policy and ultimatums against the US, NATO, and OSCE and resumes gas supplies previously, then a significant part of the European market will remain with it. However, the launched projects will steadily reduce its share. If not, then efforts to displace the Russian Federation in 2022 will only intensify, because the main argument will be its unpredictability, which will not be in interests of Gazprom's customers. In any case, the level of competition in the European gas market will only grow this year. Considering the policy announced by the US Federal Reserve to increase the discount rate, this may lead to a decline in gas prices (as well as other commodities).

Samir Valiyev

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