Gazprom cuts off more European customers on refusal to pay for Russian gas in rubles

Gazprom announced further suspensions of gas supplies to European customers May 31, after they refused to comply with a new ruble-payment mechanism introduced in response to sanctions over Russia's invasion of Ukraine.

Gazprom suspended supplies to Dutch GasTerra May 31 and plans to halt shipments to Denmark's Ørsted, and Shell Energy Europe starting June 1, it said in separate statements.

In late March, Russian President Vladimir Putin signed a presidential order stipulating that EU customers should pay for Russian gas by transferring funds in euro or dollars to a new Russian account at Gazprombank, from which payments can be made to Gazprom in rubles after conversion.

The new rules were introduced in response to Western sanctions that included the seizure of some Russian assets abroad.

Suspensions to Denmark's Ørsted and Dutch GasTerra were expected after the companies released statements saying that they would not use the new payment mechanism.

Some traders said that the suspension of supplies to Shell Energy Europe, which has refused ruble payments for supplies to Germany, was a surprise.

One Switzerland-based gas trader said that the suspension of supplies to Shell Energy Europe came "out of the blue."

"It's very difficult to say what could happen now, the market trades very low volume," an Italy-based gas trader added.

Gazprom said that its contract with Shell Energy Europe includes maximum annual supply volumes of 1.2 billion cu m.

Ørsted said that it is under no obligation to make payments for Russian gas in rubles under its supply contract, and has been notified by Gazprom about the suspension.

The company has prepared for the cutoff and expects to be able to continue to supply gas to its customers, largely through purchases on the European market, it said in a statement.

"The situation underpins the need of the EU becoming independent of Russian gas by accelerating the build-out of renewable energy," Ørsted CEO Mads Nipper said, according to the statement.

GasTerra said that the new rules risk breaching sanctions, and carry too many financial and operational risks.

Its supply suspension means that 2 Bcm of contracted gas will not be delivered, GasTerra said in a statement. The company said it had anticipated this and would source deliveries from alternative suppliers.

Previously, Gazprom suspended gas deliveries to Poland, Bulgaria, and Finland after they refused to pay using the new mechanism.

S&P Global Commodity Insights said in a five-year forecast published May 11 that it assumes the most likely scenarios will see Russian flows to Western Europe, excluding Turkey, at or below 15 Bcm/year by 2030.

The changes to Russian gas payment terms have added to supply concerns since Russia invaded Ukraine and continue to affect European gas prices.

Platts assessed the TTF month-ahead price was Eur89/MWh May 31, according to S&P Global Commodity Insights data. This is 255% above the final May assessment of 2021—Eur25.07/MWh May 28, 2021.

Some other EU-based companies have indicated that they will comply with the new system. In recent days, Putin has said that Russia will continue to supply gas to Italy and Austria in line with contract obligations, after phone calls with leaders of those countries.