Pressure is mounting 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 shut down a major gas transit route.

Gas prices rose, with the main European benchmark gaining 12 percent, as buyers were upset by mounting threats to European supplies given its heavy reliance on Russia.

Moscow has already cut supplies to Bulgaria and Poland and countries are rushing to replenish dwindling gas reserves before the winter.

Russia imposed sanctions late Wednesday, mainly against Gazprom’s European subsidiaries, including Gazprom Germania – an energy trading, storage and transmission company that Germany placed under trusteeship last month to secure supplies.

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

Kremlin spokesman Dmitry Peskov said there can be no relations with the companies involved, nor can they participate in the supply of Russian gas.

The affected entities, listed on a Russian government website, are largely located 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 largest customer in Europe, said some of Gazprom Germania’s subsidiaries are not receiving gas because of the sanctions.

Astora’s underground natural gas storage facility can be seen on Thursday in Rehden, Germany. Russia has announced sanctions against dozens of Western energy companies, including Gazprom Germania, which is run by the German government 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 no longer source gas from Russia. But the market offers alternatives.”

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

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

If sanctioned companies are unable to operate, other companies, such as gas companies, could take over contracts, which would likely involve agreeing new terms with Gazprom, including for payment, said Henning Gloystein, director of Eurasia Group.

“This may be what Gazprom plans to do here, in addition to sending a signal of retaliation (for EU sanctions),” he added.

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

The pipeline connects Russian gas fields on the Yamal Peninsula and western Siberia to Poland and Germany, via Belarus, and has a capacity of 33 billion cubic meters, about one-sixth of Russia’s gas exports to Europe.

However, gas has been flowing east through the pipeline from Germany to Poland for several weeks, 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 up supplies.

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

Dutch gas prices on the TTF hub, the European benchmark, rose as much as 20 percent before closing 12 percent higher. The benchmark has exploded over the past year, increasing the burden on households and businesses.

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

Stopped transit route

Moscow’s sanctions came just a day after Ukraine shut down a gas transit route and blamed interference by occupying Russian forces, the first time exports through Ukraine had been disrupted since the invasion.

Sokhranovka’s gas transit point will not be reopened until Kiev gains full control of its pipeline system, the head of operator GTSOU said, adding that flows could be diverted to Sudzha’s alternate transit point, although Gazprom has said that technologically is not. is possible .

Although the European Commission said the Ukrainian suspension does not pose an immediate problem with gas supplies, there are concerns in the market about the winter, when heating demand will soar and global supply constraints will bite.

“Storage levels are currently sufficient to last through most of 2022, even if Russian flows were to stop immediately, excluding unexpected weather events – but the outlook for supplies in the winter of 2022 is now a lot more pessimistic,” he said. Kaushal Ramesh, senior analyst at consultancy Rystad Energie.

Finnish politicians have been warned that Russia could halt 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.

The Russian request for payment in rubles – examples of which are shown in the image above – has been rejected by most European gas buyers. (Given Ruvic/Reuters)

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

Germany’s largest energy producer, RWE, expects Berlin to soon clarify whether payments for Russian gas can be made under Moscow’s proposed settlement, the finance chief said Thursday, as a deadline approaches at the end of the month. .

Russia’s request for payment in rubles has been rejected by most European gas buyers due to the details of the process, which requires opening accounts with Gazprombank, raising fears about potential supply disruptions and their far-reaching implications for Europe and with especially Germany, which is heavily dependent on Russian natural gas.

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