Europe continues payment response as Russian gas supply threat eases


Gas pipelines are pictured at the Atamanskaya Compressor Station, a facility of Gazprom’s Power of Siberia project outside the Far Eastern town of Svobodny in the Amur Region, Russia November 29, 2019. REUTERS/ Maxim Shemetov.

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LONDON, April 1 (Reuters) – European governments and companies were working on Friday on a common approach to Russia’s demand to pay for its gas in rubles as the threat of an imminent supply cut faded.

European capitals have been on high alert for weeks over a cut in gas imports as President Vladimir Putin seeks revenge against Western sanctions for Russia’s invasion of Ukraine.

A tipping point appeared to be in sight when Moscow issued a decree on Thursday requiring foreign buyers of Russian gas to open ruble accounts in the state-run Gazprombank from Friday or risk being cut off. Read more

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But the Kremlin said on Friday it would not immediately turn off the taps to Europe as payments on deliveries due after April 1 come in the second half of this month and in May. This message and these signs that Europe would take a pragmatic approach brought relief to the markets. Gas prices, which had risen for fear of disruption, fell. Read more

“If things stayed like this, overall, not much would change,” Italy’s Ecological Transition Minister Roberto Cingolani told state broadcaster RAI.

With weeks to go until the bills are due, European governments, which depend on Russia for more than a third of its gas, are talking to their energy companies about how to pay them.

“Work closely with Member States and operators. EU coordination today to establish a common approach on foreign currency payments for gas contracts with Russia,” tweeted the Director General of the Energy Division of the European Commission, Ditte Juul Jorgenesen.

The European Commission declined to comment further.

Analysts said the ruble payment plan, which cements Gazprom’s (GAZP.MM) position at the heart of Russia’s gas trade, was more about shielding the oil and gas company from future sanctions than depriving Europe fuel.

Gazprombank was spared the harsh sanctions imposed on other Russian banks so that European gas buyers could open an account with it and let the lender buy rubles on their behalf. It would have to remain unlicensed for the trade to continue.

Although 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 piped to Europe.

“If Putin cuts the gas, it may only be for a relatively short period of time, he needs our money and cannot redirect all the natural gas,” said a European gas trader.

Germany, meanwhile, said it was reviewing Putin’s decree, with an economy ministry spokesman saying the private contracts were valid and the country, which depends on Russia for 40% of his gas needs, paid in euros.

Berlin has already activated an emergency plan that could lead to gas rationing if the supply drops too much.

Gazprom announced on Friday that it was quitting its operations in Germany, although it was not immediately clear how this would affect Russian gas supplies to Europe’s largest economy.


Putin’s decision to impose ruble payments boosted the Russian currency, which fell to historic lows after the Feb. 24 invasion of Ukraine, which Moscow calls a “special military operation.” The ruble has since regained a lot of lost ground.

European buyers are still ready to buy gas under existing contracts as they seek to clarify Putin’s request, while Gazprom said on Friday it had started notifying customers of a requested currency change final payment in rubles.

Austria’s OMV (OMVV.VI) and Gazprom have had initial contact regarding payment for gas in rubles as required by Moscow, an OMV spokesman said on Friday, adding that the company is now awaiting written information.

Danish company Orsted (ORSTED.CO), which has a firm purchase agreement with Gazprom until 2030, said it had not yet received any inquiries from the Russian company.

“Therefore, we still don’t know what (Putin’s) statement will actually mean for the contract and for the supply of Russian gas to Danish and European households and businesses,” Orsted said in a statement.

European gas prices soared on uncertainty surrounding Putin’s plan, with rises of 7% to 10% since his order, approaching previous highs.

Relief that the taps won’t be turned off anytime soon prompted prices to turn negative. As of 12:56 GMT, the benchmark first month contract for May delivery in the Dutch gas market was down €5.00 to €116 per megawatt hour (MWh), while the next day contract was down by 4.90 euros to 119.85 euros/MWh.

In the UK gas market, the daily price was 4.25 pence lower at 280.75 pence per therm, while the contract for delivery in May was down 10.00 pence at 290 p/therm.

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Reporting by Marwa Rashad and Nina Chestney; Additional reporting by Kate Abnett in Brussels, Stephen Jewkes in Milan and Isla Bennie in Madrid; Editing by Alexander Smith and Carmel Crimmins

Our standards: The Thomson Reuters Trust Principles.


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