Reuters-By Vera Eckert, Christoph Steitz and Nina Chestney
A compressor station of RWE is pictured in the western town of Huenxe January 7, 2009. REUTERS/Ina Fassbender/File Photo
FRANKFURT/LONDON, March 24 (Reuters) – German utilities on Thursday said their country needed an early warning system to tackle gas shortages, a day after Russia ordered the switch of contract payments to roubles, raising the risk of a supply squeeze and even higher prices.
President Vladimir Putin’s rouble payment demand, which IEA Executive Director Fatih Birol called a “security threat”, added to market nervousness and calls into question Russia’s historic claim it is a reliable gas supplier regardless of geopolitics.
Europe’s energy sector is already witnessing supply concerns and the benchmark price for German delivery next year is up 8% since Putin’s remarks, after already quadrupling over the last 12 months.
For more than 50 years, even during the Cold War, Moscow has ensured supply to Germany, the biggest consumer of Russian gas. Russia’s main gas exporter Gazprom (GAZP.MM) has more than 40 long-term agreements with European counterparties. read more
But on Thursday, Germany’s utilities association BDEW, which counts Gazprom customers RWE (RWEG.DE) and EnBW’s (EBKG.DE) VNG (VNG.UL) as members, urged the government to devise an early warning system in case Russia stops supplies.
“There are concrete and serious indications that the gas supply situation is about to deteriorate,” BDEW president Kerstin Andreae said, citing Russian’s demand for “unfriendly” countries, which include Germany, to pay for gas in roubles. read more
BDEW said the national energy regulator, the Bundesnetzagentur, needs to set criteria by which industries and sectors would continue to receive supply, while household customers are protected under existing regulations.
German economy minister Robert Habeck said there was no need for an early warning mechanism and that supply was guaranteed, but added the situation needed to be monitored closely.
DILEMMA
Russia’s demand, which still needs to be backed by a concrete mechanism, presents European customers with a dilemma: don’t pay in roubles and risk getting no gas or comply and risk higher prices as contracts get renegotiated and more favourable long-term deals are jettisoned.
“Russia is not (yet) turning off the gas tap. But it could significantly increase the price we pay for it,” analysts at Commerzbank said.
Asked whether the United States would allow European nations that cannot manage without Russian gas to process payment in roubles without finding themselves in a breach of sanctions, a White House official said Washington was consulting with its allies.
Japan, the biggest importer of Russian LNG in Asia, said it was unclear how the rouble switch would work. read more
Tokyo Gas (9531.T) and Osaka Gas (9532.T), the country’s two biggest local gas suppliers, said they were studying details on the rouble requirement, echoing remarks from Germany’s VNG and other European buyers of Russian pipeline gas.
South Korea, Asia’s third-largest importer of Russian LNG, expects to be able to continue imports, with the country’s Financial Services Commission saying it would do whatever was necessary to facilitate trade.
Russian gas supply concerns underpin Asia’s spot LNG prices and Europe’s gas price benchmark
In Poland, Pawel Majewski, CEO of PGNiG (PGN.WA), said the company – which has a contract with Gazprom until the end of this year – could not simply switch to paying in roubles.
“Our contract partner can’t freely change the payment method stipulated in the contract,” he said.
Denmark’s energy giant Orsted (ORSTED.CO), which also has a long-term take-or-pay contract with Gazprom, said the likely impact of the move was unclear.
RWE and Uniper (UN01.DE), Germany’s biggest Gazprom client, had no immediate comment on Thursday.
A top Italian economic adviser said on Wednesday the country would continue to pay in euros.
For now, Russian gas continues to flow.
Gas deliveries westwards to Europe through the Nord Stream 1 pipeline across the Baltic Sea rose slightly on Thursday, while the Yamal-Europe pipeline flowed east from Germany into Poland.
Reporting by Vera Eckert and Christoph Steitz in Frankfurt; Stine Jacobsen in Copenhagen; Marwa Rashad, Nina Chestney and Noah Browning in London; Marek Strzelecki in Warsaw; Valentina Za in Milan; Tom Kaeckenhoff in Duesseldorf; Yuka Obayashi, Kantaro Komiya and Ritsuko Shimizu in Tokyo; Heekyong Yang and Joori Roh in Seoul; Jeanny Kao in Taipei; Arathy Somasekhar in Houston; Trevor Hunnicutt in Washington; Editing by Miranda Murray, Jason Neely, Emelia Sithole-Matarise and Barbara Lewis
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