Pressure is mounting for Europe to secure gas supplies from outside Russia

Pressure on Europe to secure alternative gas supplies grew on Thursday as Moscow imposed sanctions on European subsidiaries of state-owned Gazprom a day after Ukraine shut down a major transit route from gas.

Gas prices surged, with the main European benchmark gaining 12% as buyers were unsettled by growing threats to supply from Europe given its heavy dependence on Russia.

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

On Wednesday evening, Russia imposed sanctions mainly on Gazprom’s European subsidiaries, including Gazprom Germania – an energy trading, storage and transmission company that Germany placed under guardianship last month to secure its supplies.

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

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

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

Certain German subsidiaries concerned

Germany, Russia’s biggest customer in Europe, said some Gazprom Germania subsidiaries were not receiving gas due to sanctions.

The Astora underground natural gas storage facility is seen Thursday in Rehden, Germany. Russia 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 concerned,” German Economy Minister Robert Habeck told the lower house of the Bundestag. “This means that some subsidiaries no longer get 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 services local audiences.

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

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

“That may be what Gazprom intends here, beyond sending a signal of retaliation (for EU sanctions),” he added.

Gazprom said it would no longer be able to export gas through Poland via the Yamal-Europe pipeline after sanctions against EuRoPol Gaz, owner of the Polish section.

The pipeline connects Russia’s 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 towards Europe.

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

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

Dutch gas prices at the TTF hub, the European benchmark, rose 20% before closing up 12%. The benchmark has soared over the past year, adding to the burden on households and businesses.

Although German gas storage is around 40% full, this figure is still low for the time of year and stocks need to be built up in anticipation of winter.

Interrupted transit route

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

The Sokhranovka gas transit point will not be reopened until Kyiv gains full control of its gas pipeline network, the head of operator GTSOU said, adding that flows could be redirected to the transit point. alternative transit from Sudzha, although Gazprom said this was not technically possible. .

While the European Commission has said the Ukrainian suspension does not pose an immediate gas supply problem, the market is worried about winter, when heating demand will increase and global supply constraints will be felt. .

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

Finnish politicians have been warned that Russia may cut off gas supplies to its neighbor on Friday, Iltalehti newspaper reported, citing unnamed sources. Gas accounts for around 5% of Finland’s energy consumption.

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

Confusion also reigns among EU gas companies over a payment scheme decreed by Moscow in March that the European Commission says violates EU sanctions.

Germany’s top power producer RWE expects Berlin to clarify soon whether payments for Russian gas can be made under Moscow’s proposed scheme, its chief financial officer said on Thursday, as the date limit is approaching at the end of the month.

Russia’s ruble payment request has been rejected by most European gas buyers over details of the process, which requires opening accounts with Gazprombank, fueling fears of possible supply disruptions and their consequences deep for Europe and in particular Germany, which depends heavily on Russian gas.