European capitals are on alert to cut off gas imports as Russian President Vladimir Putin seeks retaliation for Western sanctions for invading Ukraine on February 24. A crisis point seemed to be approaching when Moscow issued a decree on Thursday requiring foreign buyers of Russian gas to open ruble accounts with state-owned Gazprombank on Friday, otherwise it risks being cut. read more Sign up now for FREE unlimited access to Reuters.com Register However, the Kremlin said on Friday that it would not immediately turn off taps to Europe, as payments for deliveries due after April 1 are made in the second half of this month and in May. This message, and the indications that Europe would take a realistic approach, was a relief for the markets. Gas prices, which had risen due to fears of unrest, fell. read more “If things had remained that way, overall they would not have changed much,” Italian Environment Minister Roberto Tsinggolani told the state-run RAI Broadcasting Corporation. With weeks to go before bills are paid, governments in Europe, which relies on Russia for more than a third of its gas, are debating with energy companies how to pay. “Close co-operation with Member States and operators. EU co-ordination today to establish a common approach to foreign exchange payments for gas contracts with Russia,” Diet Jules Jorgensen, Director-General of the European Commission’s Energy Department, said on Twitter . The European Commission declined to comment further. Analysts say the ruble payment plan, which strengthens Gazprom (GAZP.MM)’s position in the heart of Russian gas trade, was more aimed at protecting the oil and gas company from future sanctions than depriving Europe of fuel. Gazprombank has escaped harsh sanctions imposed on other Russian banks so that European gas buyers can open an account with it and let the lender buy rubles on their behalf. It will have to remain unapproved in order for the trade to continue. Although energy exports are Putin’s strongest lever against Western sweeping sanctions, his room for maneuver is also limited because Moscow has no alternative markets for its gas, which is piped to Europe. “If Putin shuts down gas, it can only be for a relatively short time. He needs our money and he cannot restart all the gas,” said one European gas trader. Germany, meanwhile, has said it is considering Putin’s decree. A spokesman for the economy ministry said the private contracts were valid and that the country, which depends on Russia for 40 percent of its gas needs, paid in euros. The gas pipelines are pictured at the Atamanskaya compressor station, a facility of Gazprom’s Power Of Siberia project outside the eastern city of Svobodny, in the Amur region, Russia, November 29, 2019. REUTERS / Maxim Shemetov. Berlin has already launched an emergency plan that could lead to a reduction in gas if supplies fall too low. Gazprom said on Friday it was abandoning operations in Germany, although it was not immediately clear how this would affect the supply of Russian gas to Europe’s largest economy. read more PRICE PRESSURE Putin’s decision to impose payments in rubles strengthened the Russian currency, which fell to historic lows at the beginning of the invasion, which Moscow calls a “special military operation.” Since then, the ruble has regained much lost ground. European buyers are still ready to buy gas under existing contracts, seeking clarity on Putin’s demand, while Gazprom said on Friday it had begun alerting customers to a requested final change of ruble currency. Austria’s OMV (OMVV.VI) and Gazprom had initial contact regarding the payment for gas in rubles as requested by Moscow, an OMV spokesman said on Friday, adding that the company was now awaiting written information. Orsted Denmark (ORSTED.CO), which has a take-or-pay contract with Gazprom until 2030, said it had 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 authorities on a common European response to Gazprom Export,” she said in a statement. Poland’s dominant gas company PGNiG said it had been officially informed by Gazprom of changes to its terms of payment for gas supplies. The German utilities Uniper (UN01.DE), RWE (RWEG.DE) and VNG declined to comment. The Italian energy group Edison, which has a contract with Gazprom for 1 bcm of gas per year, which expires at the end of this year, also did not comment. The Italian Eni (ENI.MI) said that it has received a communication from Gazprom regarding the transition of the gas payment currency to rubles and is analyzing the issue. European gas prices have risen as a result of uncertainty over Putin’s plan, rising 7% -10% from his order, approaching previous peaks. The relief that the taps would not close soon led to negative prices. At 15:12 GMT, the benchmark contract for May delivery to the Dutch gas market was reduced by € 6.60 to € 113 per megawatt hour (MWh). Sign up now for FREE unlimited access to Reuters.com Register Report by Marwa Rashad and Nina Chestney. Additional references by Kate Abnett in Brussels, Stephen Jewkes in Milan and Isla Bennie in Madrid. Alexander Smith; Editing by Carmel Crimmins, Jan Harvey and Grant McCool Our role models: The Thomson Reuters Trust Principles.
