German authorities have triggered the first phase of a national emergency plan to prepare for a potential reduction in Russian gas supplies as the 31 March deadline approaches for Russia’s ultimatum to switch payments to rubles.
Activating the “early warning phase” of Germany’s emergency gas law means a crisis team will be convened to assess the supply situation.
This first stage of the emergency can lead to closer coordination of physical gas flows among pipeline operators, supply companies and the German government.
A ministry statement asked German industry and people to try and reduce their energy consumption as much as possible as the country embarks on a plan to wean itself off Russian gas.
Two next stages — “Alarm” and “Emergency” — if announced, would include the rationing of gas supplies in Germany, with priority given to households over industry.
Authorities in Austria have also announced the activation of the three-stage emergency gas supply plan, according to Reuters.
Russia has so far refused to withdraw its demand for "unfriendly" European customers of state-controlled gas giant Gazprom to change their payments from euros and US dollars to rubles.
The speaker of the Russian Duma legislature Vyacheslav Volodin, in a Telegram post on Wednesday, warned European leaders: “If you want gas, find rubles.”
He warned that the demand to be paid in rubles could be extended to exports of Russian gains, fertilizers, coal, oil, metals and other commodities.
The measure has been widely viewed by industry observers as a means of supporting the Russian currency’s value, which sagged earlier in March as the West passed major sanctions against the country and its corporations in response to Russia’s invasion of Ukraine.
The demand for ruble payments so far only applies to Gazprom’s gas pipeline deliveries to Europe and excludes imports of Russian liquefied natural gas from the Novatek-led Yamal LNG project in West Siberia, Russian authorities said earlier.
Major European buyers of Russian pipeline gas repeatedly said that they do not have rubles to pay for the gas supplies, and that their existing contracts do not include such a clause.
Italy’s Prime Minister Mario Draghi was quoted by Reuters as saying earlier in March that the country — Gazprom’s second largest customer in Europe after Germany — will be able to weather a complete breakdown in Russian gas supplies, though the next winter would be more difficult.
If Gazprom halts all pipeline gas supplies to Europe, the company is unlikely to escape serious financial and operational problems, including the need to shut-in major fields in West Siberia.
For the first nine months of 2021, Gazprom said it earned almost 2.5 trillion rubles ($33 billion at the exchange rate at that time) from total gas sales to Europe and other markets, including Turkey and China.
During this period, Gazprom sent an estimated 25 billion cubic metres of gas to Turkey and China, with gas deliveries to Europe topping 151 Bcm, according its earlier reports.
Revenues from domestic gas deliveries of 170 Bcm brought in 733 billion rubles between January and September last year, while deliveries of 24 Bcm of gas to the former Soviet Union area added just 267 billion rubles to the company’s top line in this period, according to its latest financial report.
Mikhail Krutikhin, a partner at Moscow based energy consultancy RusEnergy, said Gazprom may potentially offer its European customers an opportunity to involve “middle companies” to accumulate payments from them in euros and US dollars as soon as next month.
These “middle companies” may then convert the foreign currencies into rubles and send the payments on to Gazprom so that the Russian company can report that it has been fulfilling the government’s order, Krutikhin suggested.
Gazprom claims to be Russia’s largest employer and corporate tax payer.
According to deputy executive chairman Famil Sadygov, the company and its numerous subsidiaries employ more than 400,000 people across the country and last year paid an estimated 3 trillion rubles in taxes, or about 16% of total Russian federal budget revenues.
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