The threat of an abrupt interruption of Russian gas exports to Europe has receded as both sides edge closer to an arrangement that will avoid an impasse over currency denomination demands.

The European Commission signalled a more flexible position through guidance on how European Union companies can pay for Russian gas without falling foul of sanctions imposed since Russia’s invasion of Ukraine.

Moscow’s demands for payment to be switched to the weakened Russian ruble can be navigated by opening an account at a designated Russian intermediary bank as long as deposits are made in the currency denominated in existing contracts and declared as such when the transaction is completed.

Nearly all of the supply contracts EU companies have with Russian gas giant Gazprom are in euros or dollars.

A European Commission spokesman made it clear, however, that opening an account in rubles at Gazprombank would breach the EU’s sanctions regime.

Deadlines for the payment for April pipeline gas supplies by Gazprom are imminent, with Moscow insisting on a new scheme that will involve country’s major bank, Gazprombank, and the conversion of incoming payments into rubles.

Unfriendly nations

A decree signed by Russian President Vladimir Putin on 31 March, said that Gazprom should impose a single payment system for customers from a list of “unfriendly states”.

The Kremlin has included EU nations on this list after they imposed extensive sanctions following Russia’s invasion of Ukraine.

Russia has used the refusal of buyers in Poland and Bulgaria to adhere to this scheme as an excuse to halt gas deliveries to these two countries outright, but has not made any moves to halt gas supplies to other European nations.

However, Ukraine’s neighbour Moldova's latest payment was made in euros and was not rejected by Gazprom, according to the executive board chairman of Moldova’s gas importer and distributor Moldovagaz.

Those affected are asked to open foreign currency and ruble accounts with Russia’s Gazprombank in order to have payments in euros or US dollars accepted and converted into rubles before sending them to Gazprom’s accounts.

Eni decision

Italy’s Eni was the first big company to clarify its moves in the light of the guidelines on Tuesday, stating that it had applied to open “two current accounts at Gazprombank on a precautionary basis, one in euros and the second in rubles”.

This follows a unilateral request from Gazprom's trading subsidiary Gazprom Export to amend its existing contracts with Eni in accordance with the new gas payment procedure.

While Eni has rejected those amendments, the company is going to temporarily open the two accounts “without prejudice to its contractual rights which still envisage payment in euros”, the company said.

“The decision has been shared with the Italian institutions. It was taken in compliance with the current international sanctions framework and in the context of an ongoing discussion with Gazprom Export to explicitly confirm that any possible risk or cost deriving from this new payment procedure will be allocated to Gazprom Export,” Eni continued.

Russian squeeze

Gazprom’s customers in northwestern Europe are unlikely to see options to buy more pipeline gas from Russia above their contractual minimums anytime soon.

Only one of the exports routes from Russia — the Nord Stream subsea gas pipeline — is operating normally, with annual capacity for 55 billion cubic metres of gas.

Last week, Gazprom refused to modify the transit supply arrangement via Ukraine after a key pipeline pumping station in the Luhansk region was taken over by the Russian military.

Its operations were halted by the country’s transmission authority Operator GTS Ukrainy, with force majeure declared.

Operator GTS said on Monday that Gazprom is currently shipping about 53 million cubic metres per day of gas across the Sudzha pipeline hub in the Sumy region in the north of the country, against a contractual minimum of 109 MMcmd.

Operator GTS Ukrainy executive director Sergey Makogon said the Sudzha hub services three trunklines from Russia and is capable of handling 244 MMcmd of Russian gas transit against the Nord Stream’s capacity 160 MMcmd.

European gas reserves in storage appear to be on track to reach the European Union’s new minimal storage requirement of 80% of capacity by November, thus erasing a possible “geopolitical risk premium” in spot gas prices for the upcoming winter, equity analysts with Jefferies investment bank suggested.

Gazprom’s possible refusal to operate the Yamal Pipeline, which supplies gas from Russia across Belarus to Poland and Germany, has been discounted now by market players with an eye on a flurry of activity in Europe to arrange alternative gas supplies.

Poland’s state oil and gas producer, PGNiG, said on Monday that it has signed a heads of agreement with Sempra Infrastructure of the US for the delivery of 3 million tonnes per annum of LNG from two liquefaction terminals in the US Gulf of Mexico from 2027.

According to PGNiG, these supplies are likely to enter the country’s pipeline network via a planned floating storage and regasification unit near the Baltic port of Gdansk in Poland.

PGNiG already has contracts for the supply of 7 million tpa of US LNG that provides over 9 Bcm of gas after regasification and fully replaces Russian gas pipeline imports.

The company has reserved the full capacity of the country’s first terminal in Swinoujscie, allowing it to accept 6.2 Bcm per annum of gas after regasification, with a target capacity of 8.3 Bcm per annum after planned expansion in 2024.

PGNiG has also booked capacity in the regasification terminal in Klaipeda, Lithuania, on the Baltic Sea, the company added.

The company has chartered eight LNG carriers, each with a capacity of 174,000 tonnes, that will be built exclusively for PGNiG to transport LNG to the country and Europe.

The first two carriers will enter into service next year, the next two — in 2024 and the remaining four — in 2025, the company said.

(This article was updated on 17 May, 2022 to include Eni’s statement on payment terms).

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