EU Imports Of Russian Gas Soar As Deadline For Ruble Payments Arrives

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by Tyler Durden
Friday, Apr 01, 2022 - 02:23 PM

Update (1100ET): In the latest sign that Germany, Italy and others are complying with Russia's demands to make gas payments in rubles, Sky News reports that the amount of Russian gas flowing into the EU hit its highest level in four months on Friday, which is the deadline - set by President Putin - for countries to start making their payments in rubles.

The Kremlin has appeared to leave the door open to a last-ditch compromise, saying that Russia wouldn’t halt all supplies today as payments on deliveries due after April 1 wouldn’t be taken until as late as May. Roughly 60% of gas imports into Europe are currently paid in euros, and the rest in dollars. What's more, Russian press reported Friday that the country hasn't seen a decrease in oil output

Given the dire consequences of losing Russian gas supplies, energy experts cited by Sky expect Russia and the EU to reach some kind of agreement to allow clients in countries like France and Germany continue to paying for their gas in euros while Gazprom converts the money to rubles in specially designated accounts.

"It was in the interest of both parties to avoid a complete halt of flows," said Leon Izbicki, a natural gas analyst at Energy Aspects. "Europe would need to implement rationing of gas, which would have massive ramifications and lead to industrial shutdowns, while Russia would lose yet another revenue stream."

Gazprom has already started laying the foundation for the move, having already sent requests for clients to make the switch. However, Bloomberg reported just minutes ago that Shell has already run into issues with Gazprom's proposed system for ruble payments as sanctions complicate the situation.

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As Russian President Vladimir Putin ratchets up the pressure on Germany and its EU compatriots to either agree to pay for Russian gas in rubles, or face a devastating shortfall, gas traveling through the Yamal-Europe pipeline has started traveling in reverse, flowing eastward from Germany to Poland.

According to Reuters, physical exit flows at the Mallnow metering point on the German border stood at 2,691,220 kwh/h, according to data from the Gascade pipeline operator.

That figure was slightly larger than the 1,451,155 kwh/h on Tuesday, before gas stopped flowing eastward.

The pipeline reversal comes as Russian gas giant Gazprom has started sending requests to customers to switch their payment currency to rubles. Notifications about the new payment order had been sent to customers on Friday, the Russian gas giant said in a statement on its official Telegram channel, per BBG.

As Bloomberg points out, various European nations and leaders have differing views on Moscow's demands. While German Chancellor Olaf Scholz initially resisted the request, denouncing it as a breach of contract, French Ecology Minister Barbara Pompili said she doesn't consider Moscow's demands for payment in rubles as a violation, since companies would continue to be able to pay for gas in euros, according to the information received from Moscow. The German government said it is still pouring over the details before coming to a decision, while Denmark condemned the request. A senior energy official in Italy said Friday that if the bloc moved to meet Russia's demands for payment in rubles, "not much would change".

"Gazprom as a Russian company is unconditionally and fully compliant with Russian law," which from April 1 stipulates only ruble payments for gas exported in the "unfriendly” states, the company said. “Gazprom is a responsible partner and continues to export gas to clients in a safe manner."

Europe relies on Russia for roughly 40% of its gas needs, and despite Washington's promise to try and wean the bloc off its dependence on Russian products, it's widely believed that supplanting Russian supplies with exports from the West and Middle East (and elsewhere) would likely take years, if it happens at all (since, as we explained earlier this week, exporters might be reluctant to re-route supplies to Europe because of its long-term orientation toward 'green' energy). 

What's more, the US has already been hiking exports to Europe, raising questions about whether the additional 15 billion cubic meters that President Biden has promised to export to the EU this year is even possible.

To underscore the seriousness of the situation, the CEO of Germany's multinational BASF SE, the world's largest chemical producer, has warned that curbing or cutting off energy imports from Russia would likely send the Germany economy into its most "catastrophic" economic crisis going back to the end of World War 2.