ALEXEY VEDEV: “DOMESTIC GAS PRICES NEED TO BE REGULATED”

Alexey Vedev, Doctor of Economic Sciences, Head of the Financial Studies Department of the Gaidar Institute, in an interview with Oxu.Az answered some hot questions about natural gas prices and the possible effects of their price jumps in world markets on the cost of “the blue fuel” for retail consumers in the supplier countries.

A few days ago, the price of natural gas in Europe hit a new record high, rising to nearly $ 1,000 per thousand cubic meters. If we choose to speak in the dry language of figures, since the beginning of this year prices for “blue fuel” increased fivefold. Of course, this was followed by some bouncebacks, but nevertheless, natural gas is being traded at an all-time high price.

- The price of gas has always been tied to that of oil. And one of the possible explanations behind such price jumps for the “blue fuel” has to do with the fact that some time ago, gas was “untied” from the per barrel price of oil. Is that really the case?

- That seems to be exactly what happened. However, and it deserves a special note, oil prices are also quite high. Remember the prediction of a price corridor of $40-60 per barrel for ten years, and now the per barrel price exceeds $75, and this is a very good price. It is clear that the price of gas now depends on its spot market price. But on the other hand, Russia, within the framework of agreements with Germany and Belarus, sells gas at completely different prices, which are much lower.

- Has gas become a kind of speculative currency, like a cryptocurrency, the same as bitcoin, which allows you to actively play with the ups and downs of the price movement? Such versions have also been voiced by the expert community.

- I doubt it. On the one hand, gas fits well into the now fashionable “green economy” movement. On the other, a structural imbalance of supply and demand has emerged. But this situation will be resolved quickly enough. In the next two or three weeks, the price of gas will decrease.

- Do the countries supplying natural gas benefit from the rising prices for the “blue fuel”? Russia and Azerbaijan are the suppliers of natural gas, which is expensive in Europe. Could this affect its cost to domestic consumers?

- In Russia, prices, say, for gasoline are often tied to the world price of oil. I think that this is weird enough. The argument is usually as follows: if the external price is high, the internal price should

likewise be increased. And if the external price is low, then the domestic price must be raised once again in order to offset the losses from foreign trade. But, in my opinion, these factors should not be connected in any way. I believe that in Russia and Azerbaijan the supplies to the domestic and foreign markets are balanced. So, to raise domestic prices would be a misguided policy. Domestic gas prices produce notable social and economic impacts. This gives rise to certain problems for the population and for the production sector, because the cost of products increases. Domestic gas prices should be restrained, regulated, and in Russia this is done based on the formula “inflation minus” (based on inflation forecasts - ed.). And special consideration should be given to the fact that the gas industry is a monopoly.

Saturday, 25.09.2021