Russia's gas supply to Europe at risk as rouble deadline nears

Moscow says it is ready to redirect supplies to Asian markets if Europe refuses to pay roubles

Operators at an Enagas regasification plant, the largest LNG plant in Europe, in Barcelona, Spain, on March 29. AP
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Russia said it would work out practical arrangements by Thursday for foreign companies to pay for its gas in roubles, raising the probability of supply disruptions as western nations have so far rejected its demand for a currency switch.

President Vladimir Putin's order last week to charge "unfriendly" nations in roubles for Russian gas has boosted the currency after it fell to all-time lows when the West imposed sweeping sanctions over Moscow's invasion of Ukraine.

"No one will supply gas for free, it is simply impossible, and you can pay for it only in roubles," Kremlin spokesman Dmitry Peskov said on Tuesday.

The speaker of Russia's upper house of Parliament, Valentina Matviyenko, said Moscow was ready if Europe refused to buy its energy and could redirect it to Asian markets and others, Tass news agency reported.

European countries, which mostly pay in euros, say Russia is not entitled to redraw contracts. The G7 group of nations rejected Moscow's demands this week.

European wholesale gas prices made further gains this week on concerns that supplies could stop, although Russia has so far met contractual obligations for gas sales to Europe.

Mr Peskov said that, in line with a March 31 deadline set by Mr Putin for the rouble payments, "all modalities are being developed so that this system is simple, understandable and feasible for respected European and international buyers."

G7 countries urged companies not to agree to rouble payments and said most supply contracts stipulated euros or dollars.

"That's a position that we share," a European Commission representative said in Brussels on Tuesday.

The commision said last week it was assessing scenarios that included a full halt to Russian gas supplies next winter, as part of its contingency planning for supply shocks.

Europe receives about 40 per cent of its gas from Russia. Imports were about 155 billion cubic metres (bcm) last year.

A compressor station of the Jagal natural gas pipeline in Mallnow, Germany. The Jagal is the extension of the Yamal-Europe pipeline that carries Russian natural gas to Germany. Getty

Mr Putin's demand has stoked fears in Germany, Europe's top economy, which is heavily reliant on Russian gas.

Germans are concerned about possible disruptions and the effects on industries and households should utilities fail to pay in roubles.

Without Russian supplies the German economy faced "massive damages, which should be avoided if in any way possible", E.ON chief executive Leonhard Birnbaum told German TV.

Mr Birnbaum said the country needed three years to become independent of Russian gas.

In case of disruption, he said Germany's gas network regulator would give priority to heating homes over industrial use, so energy-hungry manufacturers such as steel makers would bear the initial brunt of supply cuts.

Data from Gas Infrastructure Europe shows EU gas storage sites are 26 per cent full now, highlighting the challenge of replacing Russia as an energy provider.

The European Commission has proposed legislation requiring EU countries to fill storage to at least 80 per cent this year.

Markus Krebber, chief executive of Germany's largest utility, RWE, a customer of Gazprom, said Germany could only cope with a complete halt to Russian gas imports for a very short time.

The head of the Ukrainian gas transmission network also said Ukraine, through which some pipelines supplying Russian gas to Europe pass, needed to accumulate 17 bcm of gas for next winter by the end of October, saying this would be difficult.

Refinitiv analysts wrote in a report that EU storage would be at 23 per cent by October 1 if Russian supplies were completely stopped through the summer and there was no additional supply.

"These levels are a direct threat to the energy supply security in Europe," the analysts said.

They said storage could reach 58 per cent, which was still very low, if transmission of liquefied natural gas from north-west Europe was maximised and pipeline imports increased from alternative suppliers.

Washington and Brussels struck a deal last week for the US to supply 15 bcm of LNG this year, although that would not alone fully replace Russian gas imports.

Updated: March 29, 2022, 10:55 PM