Gazprom’s announcement on Tuesday of the suspension of natural gas supplies to Poland and Bulgaria is unlikely to have a major impact on the wider European gas market, analysts say. But it is a warning that further, more severe fuel cuts from Russia could occur as the war in Ukraine continues.
The move “increases the risk of further early terminations for other European contracts,” Giacomo Romeo, an analyst at Jefferies, an investment bank, wrote in a commentary.
The gas cut by Russia is the first major suspension of supplies to European countries since the start of the war in Ukraine at the end of February. Gazprom, Russia’s gas monopoly, said in a statement it was acting because the Bulgarian and Polish gas companies failed to meet President Vladimir V. Putin’s demands to pay in Russian rubles for gas supplied since April 1.
European leaders and utilities have said complying with the demand for rubles would violate Western sanctions. Russia has said it will cut off gas to those who do not comply. As payments fell due, it was unclear how the standoff would be resolved.
Mr Putin appears to be testing European customers, trying to find weaknesses and sow division. Russian officials have made belligerent comments, but so far Gazprom has honored supply contracts with Europe that help fund the Kremlin’s war machine.
“Russia appears ready to follow through on its threat to militarize energy exports,” Helima Croft, head of commodities at RBC Capital Markets, an investment bank, wrote on Wednesday.
Analysts say that indeed breaking contracts with Poland and Bulgaria is a relatively low risk. Poland did not want to sign another contract with Gazprom, and Bulgaria is a small customer, consuming around 2% of the gas that the Russian giant sends to Europe.
Some analysts say Mr. Putin may have miscalculated. Prior to this public breach, companies may have been willing to hold their noses and quietly bid on Russia’s bids for security of supply reasons, but now it may be more difficult for blue-chip companies to Western Europe to do so.
“If you’re a large, publicly traded utility and you’re seen publicly pandering to Putin’s blackmail, you could be in real trouble from your shareholders,” said energy chief Henning Gloystein. and climate at Eurasia Group, a political risk firm.
Mr. Gloystein also said that some national governments could tell their companies not to comply with Kremlin dictates.
The European Union, however, appears interested in helping companies continue to buy fuel from Russia without disruption or legal danger.
The European Union recently suggested in a policy paper that a proposed arrangement by Moscow – under which companies open an account at Gazprombank, the company’s financial arm, and make deposits in euros or dollars which are then converted into rubles – might not be considered a sanctions violation.
On Wednesday, Uniper, a major German utility, said it was talking to Gazprom about implementing ruble requirements in light of recent statements from the European Union.
“Our view is that a payment is always allowed,” the company’s chief financial officer, Tiina Tuomela, said in a call with analysts, saying the company was “in close contact with the German government to this subject”.
Other companies could follow Uniper’s lead, prioritizing securing supplies for their customers rather than taking a stand against Russia. Hungarian Prime Minister Viktor Orban, who has close ties to Mr Putin, has already said his country is ready to comply.
Gloystein said he thinks some companies will back down and more cuts may come.
For Europe, the gas shutdown is timely, if there is such a thing. With spring weather getting warmer, gas consumption, which rises in winter, is on the decline, easing some of the pressure that has kept prices high for months.
In a note to clients on Tuesday, Goldman Sachs analysts said they expected the Russian cuts to have “only a modest physical impact” on the supply-demand balance in the market. key market in North West Europe.
Despite those assurances, the Russian move sent European natural gas futures prices soaring on Wednesday — they opened more than 20% higher on the Dutch TTF exchange, at 125 euros (about $133) per megawatt hour. Prices fell later in the day.
Poland will most likely be sidelined from the Russian cut in the coming months. It has transported only modest amounts of gas from Russia this year via the Yamal gas pipeline, which Gazprom is in the process of cutting. Indeed, the pipeline has often operated in the opposite direction, bringing gas from storage in Germany to Poland.
Unlike some other European countries, Poland has been working for at least a decade to avoid being ransomed by Moscow for energy. This preparation means that Warsaw has other options for obtaining gas, including a liquefied natural gas terminal that the country has built to reduce its dependence on Russian gas. The facility allows Poland to import fuel from suppliers like Qatar and the United States. In addition, a new pipeline bringing gas from Norway under the Baltic Sea is expected to come on stream this year.
Poland has also put gas into storage facilities which are now more than 75% full, more than double the European average.
In a statement on Wednesday, PGNiG, the dominant Polish energy company, said it had “various opportunities to obtain” gas, including from Germany and the Czech Republic.
PGNiG said that by stopping gas flows, Gazprom violated its contract. The Polish company said that “after careful analysis” it decided that the payment in rubles was not in accordance with the terms of its contract.
Bulgaria also maintains that it has fulfilled its legal obligations and that the gas is being used “more as a political and economic weapon in the current war”, said its energy minister, Alexander Nikolov. Although heavily dependent on Russian gas, Bulgaria is a minnow in terms of overall European fuel consumption, analysts say. But like other smaller countries in southern and eastern Europe, it may struggle to fully replace Russian gas, analysts say.
“It is in both the EU’s and Russia’s interest to find a solution,” Goldman analysts wrote, warning that further gas suspension could come at a “significant economic toll.”
Matina Stevis-Gridneff contributed report.