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Prof. ST Hsieh

Director, US-China Energy Industry Forum

626-376-7460

[email protected]

March 28, 2022

While the US and EU just announced an energy plan for decoupling Russian energy supply in five years, Putin made his move today by requesting “his government and Gazprom , which accounts for 40% of European gas imports, should present their proposals for rouble gas payments to” him by March 31, which is only three days away. It will upend the global gas market system.

EU nations’ response, of course, is collectively “no.” But there is no common position except anxieties. “The only big issue in Europe is gas and Russia is asking us to pay in roubles which we don’t have” is a fact but it is up to the buyer to find enough roubles not the seller.

However, roubles were not in the original contracts and negotiations will be needed to resolve the payment scheme. Major Roadblocks are:

  1. After the Ukraine war started on February 24, US led EU have heavily sanctioned Russia to the extent that many routine commercial activities have been suspended. It is a very tough atmosphere for any commercial negotiation going forward.
  2. Putin runs Russia, he is the decider and can implement his policy. But EU has 30+ nations with different energy needs and financial abilities. EU needs a “common position” to collectively negotiate with Russia, otherwise Putin can effectively divide EU nations.
  3. Putin is setting the agenda and controls the timetable; it is a serious challenge for EU. Putin could effectively divide EU from the US
  4. The roubles for European’s gas payment system may not start on March 31. But it could be a harbinger of a new multi-currency global energy market system.

UPDATE 2-Russia will not supply gas to Europe for free, Kremlin says

Nina Chestney

Mon, March 28, 2022, 2:51 AM

By Nina Chestney

March 28 (Reuters) – Russia is working out methods for accepting payments for its gas exports in roubles and it will take decisions in due course should European countries refuse to pay in the Russian currency, the Kremlin said on Monday.

At a meeting of European Union leaders on Friday, no common position emerged on Russia’s demand last week that “unfriendly” countries must pay in roubles, not euros, for its gas in the wake of the United States and European allies teaming up on a series of sanctions aimed at Russia.

Concerns over security of supply were enhanced after the demand, with companies and EU nations scrambling to understand the ramifications.

The Russian central bank, the government and Gazprom , which accounts for 40% of European gas imports, should present their proposals for rouble gas payments to President Vladimir Putin by March 31.

“We are not going to supply gas for free, this is clear,” Kremlin spokesman Dmitry Peskov told a conference call. “In our situation, this is hardly possible and appropriate to engage in charity (with European customers).”

On Friday, German Finance Minister Christian Lindner advised German energy providers not to pay for Russian gas in roubles, in an interview with broadcaster Welt.

Italy will continue paying Russia for energy in euros, a top economic adviser to the Italian government said last week.

The only big issue in Europe is gas and Russia is asking us to pay in roubles which we don’t have and it’s not in the contract,” the chief executive of Italian energy group Eni , Claudio Descalzi, said on Monday at an industry event in the United Arab Emirates.

Poland’s PGNiG, which has a contract with Gazprom until the end of the year, has also said it cannot simply switch to paying in roubles.

The EU aims to cut its dependency on Russian gas by two-thirds this year and end Russian fossil fuel imports by 2027.

On Friday, the United States said it will work to supply 15 billion cubic metres of liquefied natural gas (LNG) to the European Union this year.

U.S. LNG plants are producing at full capacity and analysts say most of any additional U.S. gas sent to Europe would have to come from exports that would have gone elsewhere.

Russian gas exports to the EU were at around 155 bcm last year.

Russia and West at odds over gas payments in roubles

Nina Chestney and Joseph Nasr

Mon, March 28, 2022, 2:59 AM

(Reuters) -Russia said on Monday it will not supply gas to Europe for free as it works out methods for accepting payments for its gas exports in roubles but G7 nations refused the demand.

At a meeting of European Union leaders on Friday, no common position emerged on Russia’s demand last week that “unfriendly” countries must pay in roubles, not euros, for its gas in the wake of the United States and European allies teaming up on a series of sanctions aimed at Russia.

Concerns over security of supply were enhanced after the demand, with companies and EU nations scrambling to understand the ramifications.

The Russian central bank, the government and Gazprom, which accounts for 40% of European gas imports, should present their proposals for rouble gas payments to President Vladimir Putin by March 31.

“We are not going to supply gas for free, this is clear,” Kremlin spokesman Dmitry Peskov told a conference call. “In our situation, this is hardly possible and appropriate to engage in charity (with European customers).”

In a interview aired later on Monday with the American public broadcaster PBS, when asked whether gas would be turned off for non-payers, Peskov replied: “No payment – no gas.”

But he added that Russia is yet to take a final decision on how to respond should European countries refuse to pay in the Russian currency.

Meanwhile, energy ministers from the Group of Seven industrialized nations rejected the rouble payment demands, Germany economy and climate protection minister Robert Habeck said after talks with his counterparts.

“All G7 ministers have agreed that this is a unilateral and clear breach of existing contracts,” he told reporters after a virtual conference with G7 energy ministers.

The ministers “underlined once again that the concluded contracts are valid and the companies should and must respect them … payment in roubles is unacceptable, and we call on the companies concerned not to comply with Putin’s demand,” he said.

ENERGY SECURITY

Dutch and British wholesale gas prices rose by up to 20% on Monday on concerns about Russian gas supply. [NG/EU]

The EU aims to cut its dependency on Russian gas by two-thirds this year and end Russian fossil fuel imports by 2027. Russian gas exports to the EU were around 155 billion cubic metres (bcm) last year.

On Friday, the United States said it will work to supply 15 bcm of liquefied natural gas (LNG) to the European Union this year.

U.S. LNG plants are producing at full capacity and analysts say most of any additional U.S. gas sent to Europe would have to come from exports that would have gone elsewhere.

Russian lawmaker Ivan Abramov said a refusal by the G7 to pay for Russian gas in roubles would lead to an unequivocal halt in supplies, according to the RIA news agency.

Abramov sits on the economic policy committee of the Federation Council, the Russian parliament’s upper chamber.

Germany’s Habeck called Russia “an unreliable energy supplier.”

When asked about what happens if Russia stops gas deliveries, he added: “we are prepared for all scenarios and not only since yesterday.”

However, the EU would struggle to replace all Russian gas exports in a short period of time, experts said.

Russian gas deliveries to Europe on three main pipeline routes were stable on Monday, with the Yamal-Europe pipeline continuing to flow eastwards from Germany into Poland, operator data showed.

Russia’s Gazprom said it that it was continuing to supply natural gas to Europe via Ukraine in line with requests from European consumers.

(Reporting by Reuters; writing by Nina Chestney;Editing by David Evans and Stephen Coates)

Prepare to switch to rubles for natural gas exports by March 31, Vladimir Putin tells Gazprom and Russia’s central bank

Harry Robertson Mon, March 28, 2022, 4:39 AM

  • Vladimir Putin has told Gazprom, the central bank, and the government to prepare to start taking rubles for natural gas.
  • He gave the institutions until Thursday, March 31, to finalize their plans to switch currency away from euros and dollars.
  • However, it is far from clear how the move will play out, with European companies appearing reluctant to change payment currency.

Russian President Vladimir Putin has ordered the country’s biggest gas company and central bank to prepare to start taking rubles for natural gas payments from “unfriendly” countries, saying they should outline their plans by March 31.

Putin blindsided traders in the natural gas market last week by announcing Russia would make countries deemed hostile pay for the product in rubles. Russia accounts for around 45% of EU gas imports, with pipeline exports to Europe normally paid for in euros.

The President appeared keen to push ahead with the plan on Monday. He ordered Gazprom, the central bank and the government to prepare reports outlining how it will make the switch by Thursday, March 31, according to state news agency Tass. It was not immediately clear whether the switch itself would take place Thursday.

Analysts have said Putin is trying to shore up the Russian currency and to make life more complicated for Western countries that have sanctioned Moscow over its war against Ukraine.

“At face value this appears to be an attempt to prop up the ruble by compelling gas buyers to buy the previously free-falling currency in order to pay,” Rystad Energy senior analyst Vinicius Romano said last week.

“What is clear however, is that this has added another element of uncertainty to the already chaotic European gas market by complicating gas purchases that many countries have been reluctant to cut.”

The head of the European Commission, Ursula von der Leyen, accused Russia of blackmail last week and said the move would be a clear breach of contract.

The boss of Italian energy company Eni, Claudio Descalzi, said at a panel in Dubai on Monday that the company would not be paying for gas in rubles.

European natural gas prices have soared due to Russia’s invasion of Ukraine, and pushed higher last week when Putin announced the payment plan.

Dutch TTF gas futures, Europe’s benchmark price, were up 4.7% Monday to 106 euros per megawatt hour. However, that was below last week’s high of around 127 euros and far lower than a price of more than 300 euros hit earlier this month.

The ruble was 4.1% higher against the dollar, with $1 changing hands for 98.1 rubles. It has risen relatively sharply since plunging to a low of around 140 rubles to the dollar in early March.

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