- Russian gas covers 40% of Europe’s gas needs
- Moscow calls sanctions an act of ‘economic warfare’
- Poland and Bulgaria accuse Gazprom of breaking contracts
- EU says companies can pay without breaching EU sanctions
- The gas crisis fuels concerns about the general economic impact
SOFIA/WARSAW, April 27 (Reuters) – Russia’s Gazprom (GAZP.MM) cut off gas supplies to Poland and Bulgaria on Wednesday for refusing to pay in rubles, and threatened to do the same with others, stepping up retaliation for Western sanctions imposed for Moscow’s invasion of Ukraine.
Gas prices have soared on fears that more states could be affected, including Germany, Europe’s biggest economy, which bought more than half of its gas from Russia last year.
President Vladimir Putin’s request for payment in rubles is aimed at mitigating the effect of Western sanctions, including the freezing of hundreds of billions of dollars in Russian assets. Russia’s top lawmaker said other “unfriendly” countries could also be cut.
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European Union energy ministers will hold an emergency meeting on Monday to discuss the situation, France said. Read more
The European Commission has accused Moscow of blackmail – but last week issued an advisory document to EU countries outlining options that could allow EU buyers to continue paying for Russian gas without breaching sanctions. Uniper (UN01.DE), the main German importer, said it could pay without violation. Read more
However, EU Energy Commissioner Kadri Simson said on Wednesday that Brussels always advises companies to stick to the terms of their contracts, which usually specify payment in euros or dollars, and to avoid paying in roubles.
At a meeting on Wednesday, member states’ ambassadors asked the Commission for clearer guidance, four EU diplomats said.
Gazprom, the state-controlled energy giant that supplies Europe with around 40% of its gas needs, said transit through Poland and Bulgaria – whose pipelines supply Germany, Hungary and Serbia – would be cut off if the fuel was illegally diverted.
With global supply extremely tight, it is unlikely that Europe will be able to fully replace its Russian gas in the near term.
The Kremlin, which calls U.S. and European sanctions an act of economic warfare, said on Tuesday that Gazprom was implementing Putin’s decree and halting deliveries to Bulgarian Bulgargaz and Poland’s PGNiG (PGN.WA)” due to the absence of ruble payments”. . Read more
Poland, at the forefront of efforts to supply the Ukrainian army with equipment to fight off invading Russian forces, and Bulgaria have both declared Gazprom to be in breach of contract.
“We will not succumb to such blackmail,” Bulgarian Prime Minister Kiril Petkov said.
Russia’s gas payment system, involving the opening of accounts at Gazprombank, where payments in euros or dollars will be converted into rubles, provides some leeway that could allow gas purchases to continue.
In its advisory note, the Commission said that if buyers of Russian gas confirmed payment was complete once they deposited euros, and not later when euros were converted into rubles, it would not violate sanctions. .
Germany has said businesses could pay in euros under the system, warning it could slide into recession if it were cut off from all Russian energy. Read more
Hungary, which took a similar line in Berlin, said this month that EU authorities had “no role” to play in its gas deal. Read more
“Today’s events may be an additional incentive for the EU, especially Germany, to find a way to develop a ruble payment mechanism given the significant economic cost that a stoppage of flows of gas reportedly in the region,” Goldman Sachs analysts said.
Ten European companies have already opened the Gazprombank accounts needed to meet Russian payment demands, according to Bloomberg, and four European buyers have already paid for the gas in rubles. Read more
Sources told Reuters that many companies were waiting for clearer guidance from the European Commission before opening accounts at Gazprombank, but that time was running out.
Helima Croft, head of global commodities strategy at RBC Capital Markets, said the case could “quickly become a brutal test of European resolve to support Ukraine in the face of soaring energy prices and rising risks of recession”.
Europe depends on pipelines for most of its gas, and European or North African suppliers cannot add much more production.
The US, which has long blamed Europe for relying on Russia, has offered to supply more liquefied natural gas (LNG) but can’t fill the gap – and Europe doesn’t have enough plants to regasify the supercooled liquid.
One of the Kremlin’s most loyal lawmakers has suggested that Moscow could extend its threshold.
“The same should be done with respect to other countries that are hostile to us,” said Vyacheslav Volodin, speaker of Russia’s lower house of parliament, the Duma. Read more
Some countries, such as Greece, said their next payments to Gazprom were due at the end of May.
Bulgaria and Poland are the only two European countries whose contracts with Gazprom are due to expire at the end of this year, meaning their search for alternative supplies was already advanced.
“So they were less willing to compromise on Russia’s ruble payment demand than others in Europe,” said James Waddell, head of European gas at consultancy Energy Aspects.
Germany has already activated the first stage of an emergency plan that could eventually lead to gas rationing for industry, which accounts for a quarter of demand. Read more
Automaker Mercedes-Benz (MBGn.DE) said a sudden stop in gas deliveries would affect production in Germany. Read more
Poland, whose contract with Gazprom covers around 50% of its needs, has increased its LNG reception capacity and has long pressured the bloc to end its dependence on Russian gas, which has been pumped to Europe since the 1970s during the Soviet era.
He said he planned to impose contractual fines on Russia.
Bulgaria, which depends on Russia for around 90% of its gas imports, said it would not hold talks to renew its deal with Gazprom.
Europe’s benchmark first-month gas contract jumped 20% to 118 euros ($125.14) per megawatt-hour (MWh); it was around 108 euros/MWh at 6:30 p.m. GMT.
($1 = 0.9430 euros)
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Reporting from Reuters bureaus, Tsvetelia Tsolova in Sofia, Marek Strzelecki and Anna Koper in Warsaw, Nora Buli in Oslo, Krisztina Than in Budapest; Kate Abnett in Brussels, Angeliki Koutantou in Athens and Stine Jacobsen in Copenhagen; Written by Nina Chestney; Editing by Edmund Blair and Barbara Lewis
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