European gas prices soar after Gazprom halts supplies to Poland and Bulgaria

European gas prices rose by as much as a fifth on Wednesday after Russia’s Gazprom suspended supplies to Poland and Bulgaria, saying the countries had failed to make rouble payments that were due a day earlier.

Futures contracts tracking Europe’s wholesale gas price gained about 20 per cent, before paring gains to trade 8 per cent higher at €106 per megawatt hour. Prices are more than six times higher than a year ago.

The euro, which has declined steadily since February, fell to a five-year low against the dollar on Wednesday.

“Gazprom has completely suspended gas supplies to Bulgargaz (Bulgaria) and PGNiG (Poland) due to non-payment in roubles,” Gazprom said in a statement.

Ursula von der Leyen, European Commission president, accused Russia of attempting to use gas as “an instrument of blackmail” after Gazprom’s decision to suspend the deliveries.

In a statement, she called its action “unjustified and unacceptable” and said it pointed to Russia being an unreliable gas supplier. Von der Leyen said the EU was prepared for the scenario, however, as tensions rise between Russia and the west over its invasion of Ukraine. The EU had been working to ensure alternative deliveries and the “best possible” gas storage levels, she said.

Europe depends on Russia for more than a third of its gas needs. Gazprom holds a monopoly on pipeline gas supplies in Russia.

Germany, which derives 40 per cent of its imported gas from Russia, said it was continuing to receive Russian gas unimpeded. “Germany’s security of supply is currently assured,” a spokesman for the Federal Network Agency, the regulator that oversees Germany’s energy infrastructure.

The German economy ministry said “for the time being we have not identified any shortages”. 

“But we are concerned that there has been a shut-off in supply to our European partners. We are coordinating closely within the European Union to form an overview of the situation. The relevant bodies are currently meeting.”

Poland’s prime minister Mateusz Morawiecki accused Russia of “gas imperialism” after Gazprom cut off supplies but insisted that the nation would be able to cope without Russian hydrocarbons.

“Russia has moved the borders of gas imperialism a step further. This is a direct attack on Poland . . . But we have been preparing for this moment for years,” Morawiecki said. “From the autumn, Poland will not need Russian gas at all. We will cope with this blackmail, with this gun to our head in such a way that Poles will not feel it.”

Poland imported 45 per cent of its gas from Russia in 2020 under a long-term contract with Gazprom. But the contract expires at the end of this year, and Poland has spent the last few years investing in infrastructure that will allow it to make do without Russian gas.

Poland and Bulgaria’s contracts with Gazprom allow for about 13bn cubic metres of gas imports per year, equivalent to 8 per cent of EU imports from Russia last year, according to ICIS, a commodity analysis firm.

Russia’s president Vladimir Putin decreed in March that Gazprom gas exported to so-called unfriendly countries, which include EU members, would be sold only for roubles.

Russia said the transition to rouble payments instead of euros or dollars was a response to western sanctions against its central bank, which froze about half of the country’s foreign reserves.

Multiple European buyers refused to pay in roubles, saying it contradicted contract terms and would be a way to bypass EU sanctions on the Russian central bank.

Hungary meanwhile has struck a deal to pay into a euro-denominated account with Gazprombank, which in turn will deposit the amount in roubles to Gazprom Export, foreign minister Peter Szijjarto said in a video posted to Facebook. Its next payment is due on May 22, he said. Slovakia has reached the same agreement, he added.

Szijjarto assured Hungarians that although the country’s gas supply arrived via Turkey, Bulgaria and Serbia from Russia, transit through Bulgaria would not be affected and the country would continue to receive its supply “according to the contract and according to plan”.

Gazprom Export notified Bulgargaz and PGNiG of the suspension of gas supplies from Wednesday until payment was made in accordance with the decreed procedure, the company said. It warned that the unauthorised withdrawal of gas volumes transiting through Poland and Bulgaria to other European countries such as Germany would result in a reduction of transit supplies.

“Bulgaria and Poland are transit states,” Gazprom said. “In the event of unauthorised withdrawal of Russian gas from transit volumes to third countries, supplies for transit will be reduced by this volume.”

Additional reporting by Harry Dempsey in London, Guy Chazan in Berlin and James Shotter in Warsaw

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