European gas buyers control Russian ruble ordering as supply threat eases

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LONDON, April 1 (Reuters) – Russian gas flowed to Europe, while regional gas prices continued to rise on Friday as companies grappled with President Vladimir Putin’s threat that they would halt supplies if they did not pay in rubles.

The Kremlin said it would not halt gas exports to Europe from Friday because payments for supplies due after April 1 will be made in the second half of this month and in May.

According to Putin’s decree, foreign buyers of Russian gas must open ruble accounts with Gazprombank from Friday so that foreign currencies can be exchanged for rubles. Continue reading

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Analysts said the plan, which puts state-controlled oil and gas company Gazprom (GAZP.MM) at the heart of Russia’s gas trade, was aimed more at shielding it from future sanctions than depriving Europe.

“It is of course a game to dodge sanctions, increase uncertainty, prop up gas prices and line Putin’s pockets,” said a European gas trader.

The move has sparked consternation in Europe, which relies on Russia for more than a third of its gas supplies, and among companies that buy Russian gas to generate electricity for industries and heat homes in the region.

Ditte Juul Jorgenesen, Director-General of the European Commission’s Energy Department, said on Twitter that the European Union is coordinating to find a common approach to currency payments.

“Close cooperation with Member States and operators. EU coordination today to set out a common approach to currency payments for gas contracts with Russia,” Jorgenesen tweeted.

The European Commission declined further comment.

GAZPROMBANK

Energy exports are Putin’s strongest leverage as he seeks to resist sweeping Western sanctions imposed on Russian banks, corporations, businessmen and Kremlin employees in response to Russia’s invasion of Ukraine, which Moscow is describing as a “special military operation.” .

But Russia has no alternative market to supply its natural gas to, so stopping the flows would hurt its income as well.

Putin’s decision to impose ruble payments has given a boost to Russia’s currency, which has fallen to historic lows following the February 24 invasion. The ruble has since made up much lost ground.

European buyers are still willing to buy gas under existing contracts while seeking clarity on Putin’s demand.

Austria’s OMV (OMVV.VI) and Russia’s Gazprom (GAZP.MM) have made initial contacts regarding the payment of gas in rubles, an OMV spokesman said on Friday, adding that the company is still awaiting written information.

Danish company Orsted (ORSTED.CO), which has a take-or-pay deal with Gazprom that runs until 2030, said it has not yet received a request from Gazprom.

“Therefore, we still do not know what the (Putin) statement will actually mean for the contract and for gas supplies from Russia to Danish and European households and companies,” Orsted said in a statement.

Gazprom announced on Friday that it had started notifying customers about a requested switch of the final payment currency to rubles.

So far, Gazprombank has been spared a ban on Russian banks from conducting transactions through the SWIFT payment messaging system, despite Britain freezing its assets last week. However, the UK only gets about 4% of its gas from Russia, compared to about 40% for Germany and a third for the region as a whole.

PRICE INCREASE

Gazprom’s natural gas exports from former Soviet Union countries fell to 38.5 billion cubic meters (bcm) in the quarter ended March 31, down 27.1% from a year earlier, the company said.

Still, two of the three main pipelines to Europe, Nord Stream 1 via the Baltic Sea and Slovakia via Ukraine, flowed normally on Friday, while flows were reversed through the Yamal-Europe pipeline via Belarus. Continue reading

While this meant gas flowed from Germany to Poland via the Yamal-Europe route, this is not an unusual switch.

European gas prices have risen on uncertainty over Putin’s order, with UK and Dutch gas prices up between 7% and over 10% since his announcement.

Although still a long way from the record highs seen earlier this year, European prices rose again on Friday.

The front month contract for May delivery in the Dutch gas market rose by EUR 3.7 to EUR 124.7 per megawatt hour (MWh) by 09:25 GMT, while the weekend contract rose by EUR 4.00 to EUR 123/MWh.

In the UK gas market, the day-ahead price was 15p higher at 300p per therm.

Meanwhile, requests for Russian gas to Slovakia from Ukraine via the Velke Kapusany border point rose to the highest level since late November, while requests from Italy for Russian gas supplies were slightly higher.

Greece said its next payment for Russian gas is due around April 20, but it sees no security of supply problem even if Moscow halts flows because it can activate a contingency plan that would allow it to purchase additional liquefied natural gas ( LNG) and to switch four gas-fired power plants to diesel.

It could also increase purchases of gas from Azerbaijan.

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Reporting by Marwa Rashad and Nina Chestney; Additional reporting by Kate Abnett in Brussels and Stephen Jewkes in Milan; Edited by Alexander Smith and Carmel Crimmins

Our standards: The Thomson Reuters Trust Principles.

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