Putin: Foes Must Pay for Russian Gas in Rubles

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Pool Sputnik Kremlin / Associated Press

European natural gas prices rose on Wednesday as President Vladimir Putin announced that Moscow would require "unfriendly" countries to pay for imports of Russian gas in rubles.

Gas prices had already started the day higher in anticipation of new proposals from the European Commission to protect consumers from high energy prices.

Putin said Moscow will insist on payment in rubles for its energy exports after Western countries froze Russian foreign currency reserves held by their central banks. The requirement will be rolled out for pipeline gas exports first.

Russia will continue to supply agreed volumes of gas and adhere to all other conditions of its supply contracts, he said.

"The changes will affect only currency payments, which will be changed to Russian rubles."

Most of Gazprom's exports are currently paid in euros or dollars.

Putin gave Russia's central bank and the government a week to prepare the necessary regulatory framework. Gazprom will also have to amend its supply contracts.

The April Dutch TTF gas futures contract was trading at €114.30 per megawatt hour ($36.95 per million Btu) late on Wednesday, up almost €16 from Tuesday.

It wasn't immediately clear whether non-EU Turkey, Serbia and Bosnia — which are not on Russia's list of "unfriendly" countries — will also be required to shift to rubles.

Payments for Russia's gas exports have continued to bring crucial foreign currency into the increasingly isolated country, which has been hit hard by sanctions imposed by the US, EU and the UK in response to Putin's invasion of Ukraine.

Market sources said the switch to rubles may not change much in practice, although buyers would need to buy rubles to purchase the gas.

Consultancy Rystad Energy said the move appeared to be "an attempt to prop up the ruble" by forcing Gazprom's customers to buy the Russian currency.

A gas contract manager at a European company told Energy Intelligence he sees no reason why European buyers should be obliged to pay in rubles, given that Gazprom cannot unilaterally change the currency of its long-term supply contracts.

"Either the parties enter into a formal dispute ... or it will be a violation of the contract," he said.

Other industry insiders told Energy Intelligence that the Russian move looked like an attempt to shield itself from a potential tightening of Western restrictions on the use of dollars or euros in transactions with Russia.

Brussels Reveals Market Intervention Options

Separately, the European Commission presented a list of regulatory options on Wednesday to counter high energy prices.

These could include wholesale gas and electricity price caps, a joint gas procurement platform and a new mandatory gas storage requirement.

None of these short-term proposals represent a "silver bullet" and all "carry advantages and drawbacks," the commission said. It will follow up with proposals for medium-term structural measures in May.

Brussels wants to create a task force on joint EU gas purchases to secure imports of gas, LNG and hydrogen at affordable prices.

A joint negotiating team led by the commission will hold talks with gas suppliers and seek "energy partnerships" with companies in the Mediterranean, Africa, the Middle East and the US.

The commission has also proposed a requirement for natural gas storage facilities to be filled to 80% of capacity by Nov. 1, 2022 and 90% of capacity on the same date in 2023 and subsequent years.

European market players had been concerned that a 90% target for this year would be too challenging as the region seeks to reduce dependence on Russian gas imports at a time when storage volumes are at exceptionally low levels.

On Mar. 21 EU gas stocks stood at 284.2 terawatt hours (27 billion cubic meters), or just 25.6% of capacity, according to Gas Infrastructure Europe.

Wholesale gas price caps could also be considered, but Brussels sees that as a last resort because it could adversely affect security of supply.

The commission has also proposed that EU member states could set up an entity to buy electricity in the wholesale market at competitive prices and supply it to certain consumers below market price.

Other options include compensating power generators for high fossil fuel costs or setting a price ceiling that certain baseload power generators could charge — essentially a tax on windfall profits.

Policy and Regulation, Gas Prices, Gas Supply, Sanctions
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