Amid Russia’s increasingly aggressive actions against its European Union gas customers, the gas industry is taking a toll. Over a quarter this year, the nation’s natural gas exports have fallen by over a fifth. However, higher prices have kept Russia’s coffers full even while it’s cut off deliveries.
Russia has made it a policy to export its natural gas to countries within the Commonwealth of Independent States, which includes 11 countries in Central Asia and Eastern Europe. However, according to state energy giant Gazprom (GZPFY), Moscow’s exports of natural gas to countries outside this region fell nearly 28% in the first five months of 2022. So far, the company has cut off at least 20 billion cubic meters of its annual gas supplies to customers in six European countries—Poland, Bulgaria, Finland, Denmark, Germany and the Netherlands—because they failed to make payments in rubles.
That’s essentially 14% of the total yearly total of import fuel to EU countries from the Russian Federation, based upon the International Energy Agency data.
But James Huckstepp, head of EMEA gas analytics at S&P Global Commodity Insights, told CNN Business that prices have risen to an average of $102 per megawatt hour in 2022 from last year. “It is unlikely that they will see significantly less revenue until further cuts are made,” Huckstepp said.
Since Putin’s ultimatum, Gazprom has made a way to buy euros or dollars internationally. Buyers may make payments to an account at Gazprombank, which would then convert the euros or dollars into rubles and transfer them to a second account from which payment to Russia would be made.
Shell Energy announced on Tuesday that it would not agree to new payment terms from Gazprom, which resulted in the Russian natural gas company shutting off flows to its German customers. The Netherlands’ GasTerra similarly said in a Monday statement that it would not comply with Gazprom’s “one-sided payment requirements.” The European Union is moving quickly to reduce its dependence on Moscow anyway, ramping up imports of liquefied natural gas (LNG) and pledging to slash consumption of its Russian gas by 66% before the end of the year.
Several countries are attempting to fill their fuel reserves ahead of schedule as supplies can dwindle during the winter months. The member countries have set a target for their country’s underground warehouse capacity to be at least 80 percent full by fall.
Germany, the European Union’s biggest economy, relies heavily on Russian gas to power its homes and heavy industry, but has managed to whittle Moscow’s share of its imports down to 35% from 55% before the start of the war in Ukraine.
Initially, Russia may not feel the impact of a sudden rise in oil and gas costs. Even though the EU is its biggest consumer of these energy source, according to a 2018 report by the US Energy Information Administration, soaring fuel prices have swelled Moscow’s income.
A report by the Centre for Research on Energy and Clean Air found that imports of fossil fuels from Russia to the European Union generated $47 billion in the two months after Russia invaded Ukraine, double the value for the same period in 2021. And some of Europe’s biggest energy companies have started the process of opening new accounts with Gazprombank to keep the gas flowing, despite insistence by EU officials that such a move would fall foul of its sanctions against Russia.
As European demand decreases for Western Europe’s gas as a result of future reductions from Russia, Moscow will find it harder to find replacement buyers as it has done before for its oil exports to Europe as they’re mainly transmitted via pipelines, which can take years to build.