Gazprom stops supplies to Poland and Bulgaria
Russian company says it hasn't received payment in rubles as required by new law - European gas prices are rising
European gas prices rose by a fifth on Wednesday after Russian gas company Gazprom halted supplies to Poland and Bulgaria on the grounds that the countries had failed to make ruble payments due a day earlier.
Futures contracts, which map the European wholesale price for gas, rose in early trading by around 20 percent to 117 euros per megawatt hour. The prices are almost seven times higher than a year ago.
"Gazprom has completely stopped gas supplies to Bulgargaz (Bulgaria) and PGNiG (Poland) due to non-payment in rubles," Gazprom said in a statement.
European Commission President Ursula von der Leyen accused Russia of using gas as a "blackmail tool" after Gazprom's decision to suspend supplies.
In a statement, she called the move "unjustified and unacceptable" and said it showed that Russia was an unreliable gas supplier. However, the EU is prepared for this scenario and contingency plans are in place. The EU has been working to ensure alternative supplies and the "best possible" gas storage facilities.
The EU is in the process of designing a coordinated EU response," von der Leyen said. "We will continue to work with international partners to secure alternative supply streams. And I will continue to work with European and international politicians to ensure Europe's energy security."
Gazprom Export, the Russian group's export subsidiary, had not received payments in rubles for the April deliveries of Bulgargaz and PGNiG by the end of Tuesday's working day, as required by the new Russian regulation, sources said.
Russian President Vladimir Putin decreed in March that from April Gazprom gas exported to so-called unfriendly countries, including the EU, could only be sold for rubles, according to an agreement between Gazprom, the Gazprombank, the Central Bank of Russia and the government set scheme.
Several European buyers refused to pay in rubles, saying it was against contract terms and a way to circumvent EU sanctions on Russia's central bank.
"Politically, the EU Commission's decision on whether the new payment system violates sanctions is at stake, which is likely to keep market volatility high," Goldman Sachs analyst Samantha Dart said in a note to clients.
Gazprom Export has informed Bulgargaz and PGNiG about the suspension of gas supplies from Wednesday until payment is made according to the ordered procedure, the company said. The company warned that the illicit withdrawal of gas volumes routed through Poland and Bulgaria to other European countries such as Germany would lead to a reduction in transit shipments.
"Bulgaria and Poland are transit countries," Gazprom said. "In the event of unauthorized withdrawal of Russian gas from transit volumes in third countries, deliveries for transit will be reduced by this amount."
Russia said the switch to paying for its gas in rubles instead of euros or dollars was in response to Western sanctions on its central bank, which has frozen about half of the country's foreign exchange reserves.
Europe depends on Russia for more than a third of its gas needs. Gazprom has a monopoly on gas supplies through pipelines in Russia.
Hungary, meanwhile, has reached an agreement to pay into a euro-denominated account at Gazprombank, which in turn will transfer the amount in rubles to Gazprom Export, Foreign Minister Peter Szijjarto said in a video posted to Facebook. The next payment is due May 22, he said. Slovakia has reached the same agreement, he added.
Szijjarto assured the Hungarians that while the country's gas supplies are coming from Russia via Turkey, Bulgaria and Serbia, transit through Bulgaria will not be affected and the country will continue to be supplied "according to the contract and according to plan".