“The first auction for selling Russian gas to European consumers is not a new policy of Gazprom, but just an attempt to play up to the old policy. Since Russians had hoped not for lower prices, as is usual in the European markets, but on the contrary – for higher ones.
As a rule, prices at the stock trading (with a brief period of delivery) and on spot trading platforms are lower than those recorded in long-term contracts. Moreover, they are calculated according to different principles.
Instead, Gazprom decided to cheat. First of all, the stated 3.2 billion cubic metres were offered for supply not in the next month but throughout the winter season. After all, with such ‘futures’ one can expect a higher price.
Secondly, these supplies did not replace but rather complemented those carried out under long-term contracts. That is, Gazprom hoped that the in such a way European consumers would insure risks caused by cold winter and increases in consumption, and thus will be willing to pay more.
Thirdly, Russians used a hybrid formula for calculating the initial price, based on the combination of a link to oil quotations and a spot price at European gas hubs.
However, this approach has proved to be unjustified. The first trading day ended without any agreements; generally, Gazprom managed to sell only one-third of the reported volumes. As it turned out, the demand for expensive Russian gas is very limited, especially against the background of forecasts related to further fall in prices under long-term contracts.
Most European gas companies prepare for the winter season and do not need additional insurance, especially from Gazprom. Gazprom’s attempts to manipulate European gas trading mechanisms failed: basic market mechanism came into action.”
