Gas still flows from Russia to Europe as buyers navigate Putin’s rouble order

Russian gas flowed into Europe on Friday, while European gas prices continued to rise, as firms grappled with President Vladimir Putin’s threat to cut off supplies unless they paid in roubles.

Two of the three main pipelines for Russian gas into Europe, Nord Stream 1 across the Baltic Sea and into Slovakia over Ukraine were flowing normally, while flows through the Yamal-Europe pipeline over Belarus had reversed direction.

While this meant gas is flowing from Germany to Poland through the Yamal-Europe route, it is not an uncommon switch.

Under the decree signed by Putin, foreign buyers of Russian gas must open rouble accounts in state-controlled Gazprombank from Friday to allow foreign currency to be converted to roubles.

Analysts said the plan, which puts Gazprom at the heart of the trade, was more about shielding it from future sanctions than depriving Europe of gas.

“This is less of a standoff and more of a standdown. It amounts to a warning from Putin not to tighten financial sanctions further,” said Jeffrey Schott of the Peterson Institute of International Economics think tank.

Energy exports are Putin’s most powerful lever as he tries to hit back against sweeping Western sanctions imposed on Russian banks, companies, businessmen and associates of the Kremlin in response to Russia’s invasion of Ukraine, which Moscow calls a “special military operation”.

But Russia does not have an alternative market to deliver its natural gas to, so stopping flows would also hit its income.

Putin’s decision to enforce rouble payments has boosted the Russian currency, which fell to historic lows after the Feb. 24 invasion. The rouble has since recovered much lost ground.

European buyers are still prepared to buy gas under existing contracts and have so far largely spared Russia’s gas exports to Europe from sanctions, Rystad Energy analysts said.

So far, Gazprombank has been spared from a ban on Russian banks transacting through the SWIFT payments messaging system although Britain did freeze its assets last week. Britain, however, only gets about 4% of its gas from Russia compared to around 40% for Germany and a third for the entire region.

Austria’s OMV has made initial contact with Gazprom regarding paying for gas in roubles as demanded by Russia, a spokesperson said on Friday, adding that the company is still waiting for written information.

European gas prices have risen as a result of the ensuing uncertainty and British and Dutch gas prices are up between 7% and over 10% since Putin’s announcement; however they remain far from record highs seen earlier this year.

On Friday, European prices jumped again, with the Dutch front month contract for May delivery at 9.15 before it trimmed its gains, while the British next-day contract up 7% to 305 pence per therm by 0739 GMT.

“If buyers keep following the current contract rules, a unilateral halt in flows from Russia could lead to consequences for the supplier, as buyers may trigger the Failure to Deliver clause, opening up the possibility to claim penalties from Gazprom,” Rystad’s senior analyst Vinicius Romano said.

Greece said its next payment for Russian gas was due around April 20 but it saw no security of supply issue even if Moscow halts flows as it can activate a contingency plan.

[Reuters]