Why Russia Isn’t Suffering Even As It Cuts Gas From Europe

Moscow’s gas exports to countries outside its Commonwealth of Independent States, which includes 11 Central Asian and Eastern European countries, fell nearly 28% in the first five months of 2022 , announced the Russian energy giant. Gazprom (GZPFY) said Wednesday.
Gazprom has so far cut at least 20 billion cubic meters of its annual gas supplies to customers in six European countries — Poland, Bulgaria, FinlandDenmark, Germany and the Netherlands – because they failed to make ruble payments, a request made by President Vladimir Putin in March.

This represents almost 13% of the European Union’s total annual gas imports from Russia, according to data from the International Energy Agency.

But James Huckstepp, head of EMEA gas analysis at S&P Global Commodity Insights, told CNN Business that gas prices have risen by an average of €96 per megawatt-hour ($102) in 2022 compared to last year. .

Accordingly, “it is unlikely that [Russia] will see much less revenue until further cuts are made,” Huckstepp said.

Since Putin’s ultimatum, Gazprom has offered its customers a workaround. Buyers could make payments in euros or dollars in a account at Russian Gazprombankwhich would then convert the funds into rubles and transfer them to a second account from which payment to Russia would be made.
Many large customers have accepted Gazprom’s offer to maintain gas supplies. But others resisted. Tuesday, Shell (SHLX) Energy said it had “not agreed to new payment terms”, leading Gazprom to cut off flows to its German customers. The Netherlands’ GasTerra said the same way in a statement on Monday that he would not comply with Gazprom’s “unilateral payment demands”.
The EU is moving quickly to reduce its dependence on Moscow anyway, accelerate imports of liquefied natural gas (LNG) and committing to reduce consumption of its Russian gas by 66% before the end of the year.

Countries are also rushing to fill their gas storage facilities before winter to avoid potentially disastrous supply shocks. The bloc has set a target for underground stores in member states to be at least 80% full by November.

Germany, the bloc’s largest economy, is particularly dependent on Russian gas to power its homes and heavy industrybut managed to reduce Moscow’s share of its imports to 35% from 55% before the start of the war in Ukraine.

Russia may not yet feel the impact. While the EU is its biggest buyer of gas, according to data from the US Energy Information Administration, soaring oil and natural gas prices have boosted Moscow’s revenue.

EU fossil fuel imports from the country generated $47 billion in the two months after Russia invaded Ukraine, double the value for the same period in 2021, according to a report by the Center for Energy and Clean Air Research.
And some of Europe’s largest energy companies have started the process of opening new accounts with Gazprombank to keep the gas flowing, despite EU officials insisting that such a move would violate its sanctions on Russia.
But as Europe turns away from Russian gas in the coming months, Moscow will find it harder to find other buyers – as it has done for its oil — because its gas exports are mainly delivered by pipelineswhich can take years to build.

Robert North contributed reporting.

Mary I. Bruner