LONDON, April 1 – European governments and companies on Friday worked on a common approach to Russia’s demand to pay for its gas in rubles as threats of an impending supply halt receded.
European capitals have been on alert over a disruption in gas imports as Russian President Vladimir Putin seeks retaliation against Western sanctions for the February 24 invasion of Ukraine.
A critical point appeared to be looming when Moscow issued a decree on Thursday requiring foreign buyers of Russian gas to open ruble accounts with the state-owned Gazprombank starting Friday or risk being cut off. Continue reading
But the Kremlin said on Friday it would not turn off taps to Europe immediately because payments for supplies due after April 1 will be made in the second half of this month and in May.
This message and signs of a pragmatic approach in Europe came as a relief to markets. Gas prices, which had risen amid fears of disruption, fell. Continue reading
“If things stayed that way, not much would change overall,” Italy’s Environment Minister Roberto Cingolani told state broadcaster RAI.
Weeks before the bills are due, governments in Europe, which depends on Russia for more than a third of its gas, are talking to energy companies about how to pay them.
“Close cooperation with Member States and operators. EU coordination today to set out a common approach to currency payments for gas contracts with Russia,” tweeted Director-General of the European Commission’s Energy Department, Ditte Juul Jorgenesen.
The European Commission declined further comment.
Analysts said the ruble payment plan, which cements Gazprom’s (GAZP.MM) position at the heart of Russia’s gas trade, is aimed more at shielding the oil and gas company from future sanctions than at depriving Europe of fuel.
Gazprombank was spared harsh sanctions against other Russian banks, allowing European gas buyers to open an account with it and let the lender buy rubles for them. It would not need to be sanctioned for trading to continue.
While energy exports are Putin’s strongest lever against sweeping Western sanctions, his room for maneuver is also limited because Moscow has no alternative markets for its gas, which is routed to Europe.
“If Putin turns off the gas, it may only be for a relatively short time. He needs our money and can’t divert all the natural gas,” said a European gas trader.
Germany, meanwhile, said it was examining Putin’s decree. A spokesman for the Economy Ministry said that private contracts are in place and that the country, which depends on Russia for 40% of its gas needs, is paying in euros.
Gas pipelines are pictured at the Atamanskaya compressor station, a facility of Gazprom’s Power of Siberia project, outside the far eastern city of Svobodny in the Amur region, Russia, November 29, 2019. REUTERS/Maxim Shemetov.
Berlin has already activated an emergency plan that could lead to gas rationing if the supply is too low.
Gazprom announced on Friday that it was ceasing operations in Germany, although it wasn’t immediately clear how this would affect supplies of Russian gas to Europe’s largest economy. Continue reading
PRICE PRESSURE
Putin’s decision to enforce ruble payments has boosted Russia’s currency, which fell to historic lows early in the invasion, which Moscow has described as a “special military operation.” The ruble has since made up much lost ground.
European buyers are still willing to buy gas under existing contracts while seeking clarification on Putin’s demand, while Gazprom said on Friday it had started notifying customers of a requested switch of the final payment currency to rubles.
Austria’s OMV (OMVV.VI) and Gazprom have made initial contacts regarding Moscow’s demand for gas payments in rubles, an OMV spokesman said on Friday, adding that the company is now awaiting written information.
Danish company Orsted (ORSTED.CO), which has a take-or-pay deal with Gazprom that runs until 2030, said it received a request from Gazprom Export to pay for gas supplies in rubles.
“We have no intention of paying in rubles. We are in close dialogue with other energy companies and the authorities about a joint European response to Gazprom Export,” it said in a statement.
Poland’s dominant gas company PGNiG said it had been formally informed by Gazprom about changes in payment terms for gas supplies.
German energy suppliers Uniper (UN01.DE), RWE (RWEG.DE) and VNG declined to comment. Italian energy company Edison, which has a contract with Gazprom for 1 billion cubic meters of gas per year that expires at the end of this year, also remained silent.
Italy’s Eni (ENI.MI) said it received a notice from Gazprom about switching its gas payment currency to rubles and is analyzing the matter.
European gas prices have risen on uncertainty over Putin’s plan, up 7% to 10% since his directive, close to previous highs.
Relief that the faucets would not be turned off soon caused prices to turn negative.
At 15:12 GMT, the benchmark front month contract for May delivery in the Dutch gas market fell €6.60 to €113 per megawatt hour (MWh).
Reporting by Marwa Rashad and Nina Chestney; Additional reporting by Kate Abnett in Brussels, Stephen Jewkes in Milan and Isla Bennie in Madrid; Alexander Smith; Edited by Carmel Crimmins, Jan Harvey and Grant McCool