European governments and companies were working on Friday on a common approach to Russia’s demand that they pay for its gas in rubles as the threat of an imminent supply halt eased.
European capitals have been on alert for a disruption to gas imports for weeks as President Vladimir Putin seeks retaliation over Western sanctions for Russia’s invasion of Ukraine.
A crunch point appeared to be in the offing when Moscow issued a decree on Thursday requiring foreign buyers of Russian gas to open ruble accounts in state-run Gazprombank from Friday or else risk being cut-off.
But the Kremlin said on Friday it would not immediately turn off the taps to Europe as payments on deliveries due after April 1 come in the second half of this month and May. That message sparked relief on markets and gas prices, which had risen on fears of disruption, fell.
“If things remained like this, all in all not a lot would change,” Italy’s Ecology Transition Minister Roberto Cingolani told state broadcaster RAI.
With weeks left before bills are due, governments in Europe, which relies on Russia for more than a third of its gas, are talking to their energy companies about how to pay them.
“Working closely with Member States and operators. EU co-ordination today to establish a common approach on currency payments for gas contracts with Russia,” European Commission energy division director general Ditte Juul Jorgensen tweeted.
The European Commission declined further comment.
Analysts said the ruble payment plan, which cements Gazprom’s position at the heart of Russian gas trading, was more about shielding the oil and gas company from future sanctions than depriving Europe of fuel.
Gazprombank has been spared from the harsh sanctions imposed on other Russian banks so European gas buyers could open an account with it and let the lender buy rubles on their behalf. It would have to remain unsanctioned for trade to continue.
Although energy exports are Mr. Putin’s most powerful lever against sweeping Western sanctions, his room for manoeuvre is also limited because Moscow does not have alternative markets for its gas, which is piped to Europe.
“If Putin turns off the gas it might only be for a relatively short period of time, he needs our money and cannot reroute all the natural gas,” one European gas trader said.
Germany, meanwhile, said it was examining Mr. Putin’s decree, with an Economy Ministry spokesperson saying private contracts were valid and that the country, which depends on Russia for 40 per cent of its gas needs, was paying in euros.
Berlin has already activated an emergency plan that could lead to gas rationing if supplies drop too low.
Gazprom said on Friday it was exiting its business in Germany, although it was not immediately clear how this would affect the supply of Russian gas into Europe’s largest economy.
Mr. Putin’s decision to enforce ruble payments has boosted the Russian currency, which fell to historic lows after the Feb. 24 invasion of Ukraine, which Moscow calls a “special military operation.” The ruble has since recovered much lost ground.
European buyers are still prepared to buy gas under existing contracts while they seek clarity on Mr. Putin’s demand, while Gazprom said on Friday it had started to notify clients of a requested switch of end-payment currency to rubles.
Austria’s OMV and Gazprom have had initial contact regarding paying for gas in rubles as demanded by Moscow, a spokesperson for OMV said on Friday, adding that the company is now waiting for written information.
Denmark’s Orsted, which has a take-or-pay contract with Gazprom running until 2030, said it had not yet received any inquiry from the Russian company.
“Therefore we still do not know what [Mr. Putin’s] statement will actually mean for the contract and for the supply of gas from Russia to Danish and European households and businesses,” Orsted said in a statement.
European gas prices have climbed as a result of uncertainty over Mr. Putin’s plan, with rises of 7 per cent-10 per cent since his order, coming close to previous peaks.
Relief that the taps would not be turned off any time soon prompted prices to turn negative. At 12:56 GMT, the benchmark front-month contract for May delivery in the Dutch gas market was down €5.00 at €116 per megawatt hour, while the next day contract was €4.90 lower at €19.85 per megawatt hour.
In the British gas market, the day-ahead price was 4.25 pence lower at 280.75 pence per therm, while the contract for May delivery was 10.00 pence down at 290 pence per therm.
Be smart with your money. Get the latest investing insights delivered right to your inbox three times a week, with the Globe Investor newsletter. Sign up today.