Europe signals unity against Russian gas payment demands By Reuters

By Marwa Rashad

LONDON (Reuters) – Europe has vowed to stay united against Russia’s demands to pay for its gas in rubles as the threat of an imminent supply cut waned on Friday.

European capitals brace for a gas import disruption as Russian President Vladimir Putin seeks retaliation for Western sanctions for the February 24 invasion of Ukraine. Some buyers and governments were working on ways to potentially pay for gas in rubles, as Moscow has in recent days raised the specter of cutting gas supplies if payment terms are not met.

With weeks to go before the bills are due, governments in Europe, which depend on Russia for more than a third of its gas, are talking to energy companies about Russia’s demand.

However, the European Commission said on Friday that those with contracts requiring payment in euros or dollars must abide by it.

“Agreed contracts must be complied with. 97% of the relevant contracts explicitly stipulate payment in euros or dollars. Companies with such contracts are not allowed to comply with Russian demands,” said a spokesman for the European Commission.

“The EU will respond unitedly to this latest attempt by Russia to circumvent our sanctions,” the spokesman said.

The Kremlin said on Friday it would not turn off the tap to Europe immediately, as payments for deliveries due after April 1 will take place in the second half of this month and in May.

That message and signs that Europe would act pragmatically were a breath of fresh air for the markets. Gas prices, which had risen for fear of disruption, fell.

“All in all, if things stayed like this, not much would change,” Italy’s Transition Minister of Ecology, Roberto Cingolani, told state broadcaster RAI.

On Thursday, Moscow ordered that foreign buyers of Russian gas should open ruble accounts with state-run Gazprombank from Friday or risk being cut off.

Analysts said the ruble payment plan, which confirms Gazprom’s (MCX:) position at the heart of Russia’s gas trade, was more about protecting the oil and gas company from future sanctions than robbing Europe of fuel.

Gazprombank has been spared the harsh sanctions imposed on other Russian banks, allowing European gas buyers to open an account with it and let the lender buy rubles on their behalf. It should remain unsanctioned to continue trading.

While energy exports are Putin’s most powerful lever against sweeping Western sanctions, his leeway is also limited because Moscow has no alternative markets for its gas, which is piped to Europe.

“If Putin cuts off the gas, it may only be for a relatively short period of time. He needs our money and can’t divert everything,” said a European gas trader.

Germany, meanwhile, said it was investigating Putin’s decree. A spokesman for the economy ministry said private contracts were valid and that the country, which depends on Russia for 40% of its gas needs, paid in euros.

Berlin has already activated a contingency plan that could lead to gas rationing if supplies fall too low.

Gazprom said Friday it was ceasing its operations in Germany, although it was not immediately clear how it would affect the supply of Russian gas to Europe’s largest economy.

PRICE PRESSURE

Putin’s decision to force payment of the ruble has boosted the Russian currency, which plunged to an all-time low at the start of the invasion, which Moscow calls a “special military operation.” The ruble has since regained much lost ground.

European buyers are still willing to buy gas under existing contracts as they seek clarity on Putin’s demand, while Gazprom said Friday it had begun to inform customers of a requested switch from final payment currency to ruble.

Austria’s OMV and Gazprom have had initial contact about paying for gas in rubles, as demanded by Moscow, an OMV spokesperson said Friday, adding that the company is now awaiting written information.

Denmark’s Orsted (OTC:), which has a take-or-pay contract with Gazprom that runs until 2030, said it had received a demand from Gazprom Export to pay for gas deliveries in rubles.

“We do not intend to pay in rubles. We are in close consultation with other energy companies and the authorities on a common European response to Gazprom Export,” the statement said.

The dominant Polish gas company PGNiG said it had been formally notified by Gazprom of changes to payment terms for gas supplies.

German utilities Uniper, RWE and VNG all declined to comment. Italian energy group Edison, which has a contract with Gazprom for 1 bcm of gas per year expiring at the end of this year, also declined to comment.

Italy’s Eni said it had received a message from Gazprom about switching its gas payment currency to ruble and was analyzing the matter.

European gas prices have risen amid uncertainty over Putin’s plan, with increases of 7%-10% since his order, close to previous peaks.

Relief that the taps would not be turned off soon caused prices to turn negative.

At 1715 GMT, the benchmark contract for the first month for delivery in May on the Dutch gas market fell by 9.37 euros to 111.45 euros per megawatt hour (MWh).