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Gas shutdowns in Russia boost Europe’s race for new energy supplies

As the war in Ukraine rages, an energy battle ripples across Europe, with countries rushing to replace Russian fossil fuels while Moscow cuts gas supplies to some countries and threatens others.

The European Union pledged on Wednesday to continue phasing out Russian gas purchases, support countries affected by Russian countermoves and accelerate the shift to renewables in response to Russia’s decision to stop gas flows to Poland and Bulgaria.

Russian energy giant Gazprom PJSC said it had not received payment in rubles for gas sales to Poland and Bulgaria, as required by a new decree from President Vladimir Putin. EU officials have accused Moscow of using the energy as a political weapon. Russian State Duma Speaker Vyacheslav Volodin said Wednesday that Moscow should expand measures against other nations it deems hostile.

Two months into Russia’s war on Ukraine, EU countries are accelerating efforts to replace Russian oil and gas. Steps by Germany and other national governments to switch suppliers are now advancing rapidly, threatening to diminish Russia’s most lucrative source of foreign revenue.

Germany and the EU have come under heavy criticism in recent weeks, including from Ukrainian President Volodymyr Zelensky, for their continued purchases of Russian oil and gas, which help fund Russia’s budget and his war effort.

The EU is debating potential sanctions on Russian oil, including a comprehensive but gradual embargo, but domestic measures by European countries are creating new facts on the ground faster than negotiations from Brussels.

Germany, Europe’s biggest economy, said on Tuesday it had nearly overcome its need to import oil from Russia, thanks in part to an agreement with Poland on the use of ports and pipelines. Berlin said phasing out Russian gas would take longer, but it was working on it.

For Moscow, the move to throttle gas flows to Poland and Bulgaria is a high-risk gamble that could undermine one of the mainstays of Russia’s struggling economy. Oil and gas sales provide about 40% of Russian government revenue. The EU is Russia’s main gas market.

Russia is refocusing its offensive in Ukraine on the Donbass region, after setbacks in Kyiv and other northern cities, where it was thwarted in the air and on the ground. But military experts say the eastern landscape could be advantageous for Moscow. Photo illustration: Laura Kammermann

“Gazprom’s announcement is another attempt by Russia to blackmail us with gas,” European Commission President Ursula von der Leyen said on Wednesday. She said Bulgaria and Poland already receive gas from EU neighbors and discussions are ongoing on how to avoid major disruption.

Analysts at energy consultancy Rystad said “Russia fired first against the West”, using energy as a weapon.

“Russia is trying to break the unity of our allies,” Mr Zelensky’s chief of staff, Andriy Yermak, said on Telegram.

The Kremlin on Wednesday denied it was using energy as a weapon and said it remained a reliable energy supplier.

Many European countries have scrambled to stock up on alternative gas for next winter’s heating season, mostly liquefied natural gas imported from the United States and the Middle East, and gas brought in from Norway and the United States. ‘North Africa. The EU aims to go into next winter with its gas storage facilities 80% full and cut its purchases of Russian gas by two-thirds by the end of this year.

The European Commission, the executive arm of the EU, is expected to make proposals next week for a sixth round of economic sanctions against Russia for its invasion of Ukraine, including an oil embargo or other measures to reduce Moscow’s income from oil sales. Several member states, including Germany and Hungary, have so far resisted a full embargo. But European demand for Russian oil is collapsing anyway.

Russia’s state oil company has struggled to find oil buyers in recent days. European refineries are already turning away from Russian crude oil, even without sanctions.

The French TotalEnergies SE has stopped buying Russian crude for its four oil refineries in France and Belgium. The company still buys Russian crude under a supply contract for its refinery in Leuna, Germany, but a company official said the refinery will soon replace it with non-Russian oil imported from the port city. Polish from Gdansk.

Russian energy giant Gazprom PJSC said on Wednesday it had halted deliveries to Bulgaria and Poland.


Photo:

Maxim Shipenkov/Shutterstock

Total still buys diesel from Russia under past contracts, but says it will end those purchases by the end of the year when the contracts expire.

Exxon Mobil Corp., which has six refineries in mainland Europe, said it had decided not to sign new contracts for Russian crude oil since the Feb. 24 invasion. The company was previously a big buyer of Russian crude.

European officials have said they expect Moscow to cut gas supplies to more countries. Before the war in Ukraine, the EU got around 40% of its gas from Russia.

Latvian Prime Minister Krišjānis Kariņš said in an interview that Russia’s moves are likely meant to warn the EU to slow down or halt its preparations for a full embargo on Russian oil.

“The question is, who is more resilient?” Mr Kariņš said, urging his EU colleagues not to be discouraged. “Ukrainians are paying with their lives, we are paying with higher energy prices.”

Analysts say further gas shutdowns by Russia would likely drive up fuel prices, putting more pressure on the EU’s slowing economy and fueling higher energy bills around the world by sparking a race to find gas on international markets. In the United States, natural gas prices have doubled this year, in part because LNG producers are shipping it to Europe at breakneck speed.

Natural gas prices in Europe are currently below their peak in March, but well above their levels of a year ago and remain a key source of inflationary pressure in European economies. Benchmark prices jumped 11% on Wednesday.

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Mr Putin last month demanded that countries deemed hostile to Moscow, including EU members, pay for the gas in roubles. Gas contracts are generally denominated in dollars or euros. A subsequent Kremlin decree changed the order: customers had to pay in euros or dollars to the Russian bank Gazprom, which would convert the money into rubles and send it to Gazprom itself. The EU has said its sanctions do not prevent companies from doing so.

Some EU officials have said Russia’s move against Poland and Bulgaria is unlikely to be about payment terms, but a warning to all EU members sending arms to Ukraine.

Germany announced on Tuesday that it would deliver tanks with anti-aircraft guns to Ukraine, abandoning its earlier reluctance to send heavy weapons and joining a growing number of countries, led by the United States, which are arming defenders of the Ukraine with artillery, armored vehicles and other powerful weapons.

The shutdown of Russian gas will have a limited effect on Poland, which was already expected to become independent of Russian gas by the end of this year. Still, Poland was due to receive at least another 5 billion cubic meters of gas from Gazprom that is unlikely to be delivered and will need to be replaced this summer, said James Huckstepp, European gas analyst at S&P Global Commodity Insights. Most of the gas will be pumped across the border from Germany, he added.

The shutdown is a bigger problem for Bulgaria, which gets more than three-quarters of its gas from Russia and has few quick or easy options to replace it. A new pipeline from Greece to Bulgaria to bring gas from Azerbaijan has suffered long delays and has yet to be completed, said Tom Marzec-Manser, head of gas analysis at ICIS. Using complex swap deals, Bulgaria could replace some of its Russian gas with an existing pipe to Greece, he said.

Bulgarian Energy Minister Alexander Nikolov said on Wednesday the country had enough gas in stock for the coming month and was looking for alternative deliveries.

“Because all commercial and legal obligations are met, it is clear that at this time natural gas is used more as a political and economic weapon in the current war,” Nikolov said.

The ruling coalition in Bulgaria is divided on the issue of sending arms to Ukraine. A delegation led by Bulgarian Prime Minister Kiril Petkov is visiting kyiv this week.

In Berlin, the government of Chancellor Olaf Scholz is accelerating investment in renewable energies and building LNG terminals. In the event of a complete stoppage of Russian gas inflows, Germany would have to ration energy and suspend part of industrial activity, according to analysts. The country’s leading economic think tanks said in a report released earlier in April that Germany would slide into a deep recession if Russian energy supplies were cut off completely.

Russia’s action against Poland and Bulgaria is being closely watched in Italy, the second largest buyer of Russian gas after Germany. Italy has already started to wean itself off Russian gas: the country’s imports so far in April are about half the level of the same month last year.

Italian Prime Minister Mario Draghi and his foreign minister have been criss-crossing Africa over the past month seeking deals to boost gas supplies to countries such as Algeria, Mozambique and Angola.

Moscow has long used gas as a means to achieve its geopolitical goals. Last fall, Russia withheld deliveries to Europe from the short-term gas spot market despite a global shortage. It also kept the level of storage sites it controlled across the continent low, helping to push prices to record highs. European lawmakers have called for an investigation into Russian market manipulation. Mr Putin at the time dismissed criticism of the Kremlin’s energy tactics as “politically motivated chatter”.

—Laurence Norman, Eric Sylvers and Anna Hirtenstein contributed to this article.

Write to Georgi Kantchev at [email protected] and Joe Wallace at [email protected]

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