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Russia widens Europe gas cuts and curbs supplies to Netherlands, Denmark and Germany

Gazprom announced yesterday to halt further supplies to several European countries after they refused to accept the new roubles-for-gas payment scheme, set out in a decree passed by Russian President Vladimir Putin at the end of March. The Dutch and Danish companies say they have been preparing for this scenario, while in Germany the decision only impacts a small share of gas imports.

The announcement comes as a retaliation to Western sanctions imposed on Russia following its aggression in Ukraine. Gazprom had fully cut off gas supplies to Dutch gas trader GasTerra, Denmark’s Ørsted and to Shell Energy for its contract on gas supplies to Germany.

Dutch gas trader GasTerra has decided not to comply with Gazprom’s one-sided payment requirements arguing that it would risk breaching sanctions imposed by the EU and involve too many financial and operational risks.

GasTerra said that the cessation of supply by Gazprom means that, between now and 1 October 2022, the date on which the contract ends, approximately 2 billion cubic metres (bcm) of contracted gas will not be delivered. GasTerra has anticipated this by buying gas from other providers.

“The European gas market is highly integrated and extensive. However, it is impossible to predict how the lost supply of 2 bcm of Russian gas will affect the supply/demand situation and whether the European market can absorb this loss of supply without serious consequences,” wrote the Dutch gas trader in its press statement.

Mads Nipper, Group President and CEO of Denmark’s Ørsted – which was also cut out from gas deliveries by Gazprom – said that they have been preparing for this scenario, therefore they expect to be able to supply gas to their customers.

“The situation underpins the need of the EU to become independent of Russian gas by accelerating the build-out of renewable energy. Since there is no gas pipeline going directly from Russia to Denmark, Russia will not be able to directly cut off the gas supplies to Denmark, and it will thus still be possible for Denmark to get gas. However, this means that the gas for Denmark must, to a larger extent, be purchased on the European gas market. We expect this to be possible,” underlined the CEO of Ørsted.

Gazprom also announced to turn off some of Germany’s gas supplies over Shell’s refusal to pay in rubles. However, this only covers a small amount – 1.2 billion cubic meters a year – of Germany’s total natural gas consumption, which amounted to 86.5 billion cubic meters in 2020.

The Federal Ministry for Economic Affairs and Climate Action (BMWK) declared the early warning level of the gas emergency plan in Germany, but so far gas supply in Germany is stable.

“The halt to gas supplies to Shell only affects small quantities and has not had any effect so far on security of supply in Germany,” underlined the ministry adding that at the moment around 4 per cent less gas is being transported through the Nord Stream 1 pipeline compared to the day before. These gas volumes not flowing are being procured elsewhere.

The current storage levels at the storage facilities in Germany are now 48.6 per cent, which means that they are now in some cases significantly higher than in spring 2015, 2017, 2018 and 2021.

Over the past months, European energy companies were conflicted about whether paying for Russian gas in roubles constitutes a breach of EU sanctions. Poland’s PGNiG, Bulgaria’s Bulgargaz and Finland’s Gasum have already refused to pay in roubles, as a result, Gazprom halted supplies to all these countries.

However, there are also many companies, which have continued to pay for and receive Russian gas. The details of their agreement with Gazprom, however, are not public.

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