Pressure mounts for Europe to secure gas supplies from outside Russia

Pressure on Europe to secure alternative gas supplies mounted on Thursday as Moscow imposed sanctions on European subsidiaries of state-owned Gazprom a day after Ukraine disrupted a key gas transit route.

Gas prices rose, with the main European index gaining 12 percent as buyers were uneasy about growing threats to Europe’s supplies due to its high dependence on Russia.

Moscow has already cut off supplies to Bulgaria and Poland and the countries are racing to fill dwindling gas reserves before winter.

Russia imposed sanctions on Wednesday primarily on Gazprom’s European subsidiaries, including Gazprom Germania – a power trading, storage and transmission company that Germany placed under trustee last month to secure supplies.

It also imposed sanctions on the owner of the Polish part of the Yamal-Europe pipeline that carries Russian gas to Europe.

Kremlin spokesman Dmitry Peskov said that there can be no relations with the affected companies nor participate in the Russian gas supply.

The affected entities, listed on a Russian government website, are largely based in countries that have imposed sanctions on Russia in response to the invasion of Ukraine, most of them members of the European Union.

Some German subsidiaries affected

Germany, Russia’s main customer in Europe, said that some subsidiaries of Gazprom Germania were not receiving gas because of the sanctions.

The Astora underground natural gas storage facility is seen Thursday in Rehden, Germany. Russia has announced sanctions against dozens of Western energy companies, including Gazprom Germania, which the German government runs as a trust and of which Astora is a subsidiary. (David Hecker/Getty Images)

“Gazprom and its subsidiaries are affected,” German Economy Minister Robert Habeck told the lower house of the Bundestag. “This means that some of the subsidiaries are not getting more gas from Russia. But the market is offering alternatives.”

The list also includes Germany’s largest gas storage facility in Rehden, Lower Saxony, with four billion cubic meters of capacity and operated by Astora, as well as Wingas, a trader that supplies industry and local utilities.

Wingas said it would continue to operate but would be exposed to shortages. Rivals Uniper, VNG or RWE could be potential sources of market supply. Russian gas flows to Germany continue through the Nord Stream 1 pipeline under the Baltic Sea.

If sanctioned companies cannot operate, other companies, such as gas utilities, can take over the contracts, which would likely involve agreeing new terms with Gazprom, including for payment, said Henning Gloystein, director of the Eurasia Group.

“That could be what Gazprom intends here, in addition to sending a retaliatory signal (for EU sanctions),” he added.

Gazprom said it will no longer be able to export gas through Poland via the Yamal-Europe pipeline following sanctions against EuroPol Gaz, which owns the Polish section.

The pipeline links Russian gas fields on the Yamal Peninsula and Western Siberia with Poland and Germany via Belarus and has a capacity of 33 billion cubic meters, about one sixth of Russian gas exports to Europe.

However, gas has been flowing eastward through the gas pipeline from Germany to Poland for a few weeks now, allowing Poland – which was cut off from Russian supplies along with Bulgaria last month for refusing to comply with a new payment mechanism. – to build inventories.

Germany’s Habeck said Russia’s measures appeared designed to raise prices, but the expected 3% drop in Russian gas deliveries could be offset in the market, albeit at a higher cost.

Dutch gas prices at the TTF hub, the European benchmark, rose as much as 20 percent before closing 12 percent higher. The benchmark soared last year, increasing the burden on households and businesses.

Although German gas storage is about 40% full, it is still low for the time of year and stockpiles need to be built up in preparation for winter.

Interrupted transit route

Moscow’s sanctions came just a day after Ukraine halted a gas transit route, blaming interference by Russian occupying forces, the first time exports via Ukraine have been halted since the invasion.

The Sokhranovka gas transit point will not reopen until Kiev gains full control over its pipeline system, said the head of operator GTSOU, adding that flows could be redirected to the Sudzha alternative transit point, although Gazprom has said that this is not technologically possible. .

While the European Commission has said the Ukrainian suspension does not present an immediate gas supply problem, there are concerns in the market about winter, when demand for heating will increase and global supply constraints will affect.

“Storage levels are currently sufficient to last most of 2022 even if Russian flows were to stop instantly, barring any unexpected weather events – but the outlook for winter 2022 supply is now much more pessimistic,” said Kaushal Ramesh. , senior analyst at consultancy Rystad Energy.

Finnish politicians were warned that Russia could cut off gas supplies to its neighbor on Friday, the Iltalehti newspaper reported, citing unnamed sources. Gas accounts for about five percent of Finland’s energy consumption.

Russia’s demand for payment in rubles – examples of which are shown in the image above – was rejected by most European gas buyers. (Data Ruvic/Reuters)

There is also confusion among EU gas companies over a payment scheme enacted by Moscow in March that the European Commission said would violate EU sanctions.

Germany’s biggest energy producer RWE hopes Berlin will soon clarify whether payments for Russian gas can be made under Moscow’s proposed scheme, its finance chief said on Thursday, as the deadline approaches. at the end of the month.

Russia’s demand for payment in rubles was rejected by most European gas buyers over the details of the lawsuit, which requires opening accounts with Gazprombank, fueling fears about potential supply disruptions and their far-reaching consequences for Europe and particularly Germany, which is heavily dependent on Russian gas.

Leave a Comment