Russian oil and gas group Gazprom PJSC said it had halted natural gas exports to Poland and Bulgaria effective April 27, due to the two importing countries’ refusal to pay for their gas in rubles. The move is seen as a warning shot by the Kremlin across the bows of Europe, further escalating tensions between the two over energy supplies and Russia’s invasion of Ukraine.
The gas supply suspension follows the signing of a presidential decree by Russian President Vladimir Putin on March 31 demanding that “unfriendly” countries and regions pay for their gas supplies in rubles.
Poland on April 27 confirmed that Russian gas supplies had stopped.
Gazprom said services would not be restored until payments are made in the Russian currency.
Importers pay in advance for their Russian gas, but as they have gone to pay for futures supplies, Russia has stood firm on its demand that new purchases have to be made in rubles, according to a BBC report.
The halting of supplies to Poland and Bulgaria was the “start of Russia exerting economic pressure on Europe,” and a move that could “escalate” with other European Union (E.U.) countries, the report cited the Head of Oil and Gas Research at Investec, Nathan Piper, as saying.
After initially spiking by 24 percent on news of the Russian supply halt to Poland and Bulgaria, European gas prices had fallen back on April 28. The benchmark front-month gas contract (currently May) on the Dutch TTF in Amsterdam had fallen to €98.45 per megawatt-hour (MWh) by 3:59 p.m. (GMT) on April 28, down 8.356 percent on the day. It had closed at €107.43 on April 27. The front-month contract had finished at €92.84 per MWH at the end of last week.
Poland’s state-controlled oil and gas company, PGNiG, confirmed on April 27 that the country had stopped receiving natural gas from Gazprom under the Yamal contract, the Polish Press Agency (PAP) reported, citing a PGNiG press release.
The Polish oil and gas group described the gas delivery suspension as a breach of contract, and said it would take steps to reinstate the gas supply. Some 53 percent of the group’s gas imports came from Gazprom in the first quarter of this year, according to the PAP report.
Poland’s government said late on April 26 that the country has enough natural gas in storage and customers will not be affected, Bloomberg reported. Poland’s natural gas storage facilities are filled to around 80 percent, according to PGNiG.
Grupa Azoty SA, the country’s largest fertilizer producer, said on April 28 that for the time being, supplies of natural gas to companies in the group are continuing without any disruption, and production is sustained at planned levels.
The producer added that it and its subsidiaries have contingency plans and operational scenarios in place in the event that gas supplies are disrupted or curtailed.
Grupa Azoty and its subsidiaries receive natural gas under a contract with Polskie Górnictwo Naftowe i Gazownictwo SA, which has technical capabilities to source gas from various directions – for example, through system interconnectors on its western and southern borders and via the LNG terminal in the Polish Baltic Sea port of Świnoujście. The fertilizer producer added that the mix is supplemented by domestically-produced gas and volumes withdrawn from gas storage facilities, where Poland has accumulated substantial stocks.
Poland already was planning to stop importing Russian gas by the end of this year, when its long-term contract with Gazprom expires.
The government added that Poland will be buying gas from all possible directions and will strive to increase volumes of gas at the country’s storage facilities. The country’s alternative supply sources include the aforementioned LNG terminal at Świnoujście. Also on May 1, a new gas pipeline connection with Lithuania is due to open, which will give Poland access to gas from that country’s LNG terminal.
Bulgaria relies on Gazprom for more than 90 percent of its gas supply, and Bulgarian state gas company Bulgargaz also transports Russian gas via an extension of the Turk Stream pipeline to neighboring Serbia, and from there to Hungary.
Bulgarian Energy Minister Alexander Nikolov told reporters on April 27 that Gazprom will be in breach of its current contract if it halts the flow.
The country on April 28 was reported to have secured natural gas for April 27-30 and for May to replace the lost Russian gas, according to a Bloomberg report, citing two people familiar with the transaction, who wished to remain anonymous as details of the deal had yet to be made public.
According to the report, Greece’s Mytilineos, Greek state-gas supplier Depa Commercial SA, and Hungary’s MET Hungary Ltd. won a tender to provide the gas. The May amount is equivalent to 61,000 MWh/day, according to one of the sources cited.
Separately, Bulgargaz is buying gas directly from Mytilineos and Depa Commercial for April 27-30.
Bulgaria’s main fertilizer producers are Neochim, with 0.45 million mt/y of ammonia capacity, and Agropolychim, with 0.21 million mt/y of ammonia capacity, according to Green Markets data. Both companies produce ammonium nitrate, among other nitrogen products. Agropolychim also produces TSP, with annual capacity of 0.3 million mt.
Austrian imports of Russian gas have not been disrupted by Russia’s decision to stop Gazprom gas flows to Bulgaria and Poland, Bloomberg reported on April 27, citing an emailed statement from Austrian oil and gas company OMV AG.
Meanwhile, Austrian Chancellor Karl Nehammer has denied several reports circulating from a number of German media outlets and others that OMV is preparing to pay for its Russian natural gas in rubles, and reiterated that the payments will be made in euros, Interfax has reported.
OMV is the majority owner of Vienna-based polyolefins and fertilizers major Borealis AG, with a 75 percent stake in the company.
The European Union reiterated to Member State companies this week that they risk breaching sanctions if they open bank accounts in rubles. Some European companies reportedly have been quietly taking steps to prepare to comply with Putin’s decree that gas must be paid for in rubles.
Hungary’s government confirmed early this week that it is paying in euros to Russia’s Gazprombank, which is then allowing it to be converted into rubles, according to a Bloomberg report. But it is unclear whether Hungary has also opened a ruble account.
Bloomberg reported on April 27 that four European buyers have already paid Gazprom in rubles for their gas, and 10 firms have opened the accounts at Gazprombank required to meet the new requirements. Hungary’s Cabinet Minister Gergely Gulyás confirmed they were one of the 10.