German gas buyers raise the alarm over Russia’s ruble demand

 

German gas buyers raise the alarm over Russia’s ruble demand

EURACTIV.com with Reuters 24 Mar 2022

https://www.euractiv.com/section/global-europe/news/german-gas-buyers-raise-the-alarm-over-russias-ruble-demand/?fbclid=IwAR21tdS2IYk1COWJxF0yLkyOEmcJXYTUdEqrROZaK49dN7cZGfeOiaEXBBc

 

An exterior view of the headquarters of RWE in Essen, Germany, 15 March 2021. On 24 March 2022 Germany's utilities association BDEW, which counts Gazprom customers RWE and EnBW's VNG (VNG.UL) as members, urged the government to devise an early warning system in case Russia stops supplies. [EPA-EFE/FRIEDEMANN VOGEL]

 

      German utilities on Thursday (24 March) said their country needed an early warning system to tackle gas shortages, a day after Russia ordered the switch of contract payments to rubles, raising the risk of a supply squeeze and even higher prices.

 

President Vladimir Putin’s ruble payment demand, which IEA Executive Director Fatih Birol called a “security threat”, added to market nervousness and calls into question Russia’s historic claim it is a reliable gas supplier regardless of geopolitics.

 

 

Putin says Russia will start selling gas to EU clients in rubles

 

Russian President Vladimir Putin said on Wednesday (23 March) Russia would start selling gas to “unfriendly” countries in rubles, after a freeze on Russia’s assets by foreign nations had destroyed Moscow’s trust. The “unfriendly” countries include the 27 EU members.

 

Europe’s energy sector is already witnessing supply concerns and the benchmark price for German delivery next year is up 8% since Putin’s remarks, after already quadrupling over the last 12 months.

 

For more than 50 years, even during the Cold War, Moscow has ensured supply to Germany, the biggest consumer of Russian gas. Russia’s main gas exporter Gazprom has more than 40 long-term agreements with European counterparties.

 

But on Thursday, Germany’s utilities association BDEW, which counts Gazprom customers RWE and EnBW’s VNG (VNG.UL) as members, urged the government to devise an early warning system in case Russia stops supplies.

 

“There are concrete and serious indications that the gas supply situation is about to deteriorate,” BDEW president Kerstin Andreae said, citing Russian’s demand for “unfriendly” countries, which include Germany, to pay for gas in rubles.

 

BDEW said the national energy regulator, the Bundesnetzagentur, needs to set criteria by which industries and sectors would continue to receive supply, while household customers are protected under existing regulations.

 

German economy minister Robert Habeck said there was no need for an early warning mechanism and that supply was guaranteed, but added the situation needed to be monitored closely.

 

Dilemma

 

Russia’s demand, which still needs to be backed by a concrete mechanism, presents European customers with a dilemma: don’t pay in rubles and risk getting no gas or comply and risk higher prices as contracts get renegotiated and more favourable long-term deals are jettisoned.

 

“Russia is not (yet) turning off the gas tap. But it could significantly increase the price we pay for it,” analysts at Commerzbank said.

 

Asked whether the United States would allow European nations that cannot manage without Russian gas to process payment in rubles without finding themselves in a breach of sanctions, a White House official said Washington was consulting with its allies.

 

Japan, the biggest importer of Russian LNG in Asia, said it was unclear how the ruble switch would work.

 

Tokyo Gas and Osaka Gas, the country’s two biggest local gas suppliers, said they were studying details on the ruble requirement, echoing remarks from Germany’s VNG and other European buyers of Russian pipeline gas.

 

South Korea, Asia’s third-largest importer of Russian LNG, expects to be able to continue imports, with the country’s Financial Services Commission saying it would do whatever was necessary to facilitate trade.

 

In Poland, Pawel Majewski, CEO of PGNiG, said the company – which has a contract with Gazprom until the end of this year – could not simply switch to paying in rubles.

 

“Our contract partner can’t freely change the payment method stipulated in the contract,” he said.

 

Denmark’s energy giant Orsted, which also has a long-term take-or-pay contract with Gazprom, said the likely impact of the move was unclear.

 

RWE and Uniper, Germany’s biggest Gazprom client, had no immediate comment on Thursday.

 

A top Italian economic adviser said on Wednesday the country would continue to pay in euros.

 

For now, Russian gas continues to flow.

 

Gas deliveries westwards to Europe through the Nord Stream 1 pipeline across the Baltic Sea rose slightly on Thursday, while the Yamal-Europe pipeline flowed east from Germany into Poland.