Importers of Russian LNG studying details of Russian LNG supply demand

A day after Russia ordered LNG purchasers from unfriendly countries to pay for Russian LNG deliveries in Rubles, German utilities opined that Germany needed an early warning system to tackle any potential gas shortages raising the risk of a supply squeeze and higher prices.

The Russian demand has added to market nervousness and called into question Russia’s historic claim it is a reliable gas supplier regardless of geopolitics.

IEA Executive Director Fatih Birol termed the Russian demand a “security threat”.

Europe’s energy sector is witnessing supply concerns with the benchmark price for German gas delivery for next year already up by 8%, after quadrupling over the last 12 months.

Even during the cold war, for more than 50 years, Moscow has ensured uninterrupted LNG supply to Germany, its biggest consumer.

Russia’s Gazprom has more than 40 long-term agreements with European counterparties.

“There are concrete and serious indications that the gas supply situation is about to deteriorate,” said BDEW President Kerstin Andreae citing Russian demand to pay for gas in Rubles.

Andreae went on to add, Germany’s energy regulator, Bundesnetzagentur, needs to set criteria by which industries and sectors would continue to receive supply, while household customers are protected under existing regulations.

In response, German economy minister Robert Habeck said, there was no need for an early warning mechanism since LNG supply was guaranteed; however, the situation warrants closer monitoring.

The demand to pay for LNG in Rubles by countries deemed as unfriendly by Russia has placed European customers with a dilemma: a failure to comply risks cutting off gas supplies and higher prices with contracts getting renegotiated.

“Russia is not (yet) turning off the gas tap. But it could significantly increase the price we pay for it,” opined analysts at Commerzbank.

If European nations pay in Rubles they could find themselves in breach of US sanctions.

“We will not allow our sanctions to be circumvented. The time when energy could be used to blackmail us is over,” said European Commission President Ursula von der Leyen.

Japan, the biggest importer of Russian LNG in Asia, said it was unclear how the Ruble switch would work.

In a statement Tokyo Gas and Osaka Gas, Japan’s two biggest local gas suppliers said, they were studying details of the Russian demand mirroring remarks by Germany’s VNG and other European buyers of Russian gas.

South Korea, Asia’s third-largest importer of Russian LNG, expects to be able to continue imports, with the country’s Financial Services Commission saying it would do whatever was necessary to facilitate trade.

As of now, Russian gas continues to flow to Europe.

Gas deliveries westwards to Europe through the Nord Stream 1 pipeline across the Baltic Sea rose slightly while the Yamal-Europe pipeline flowed east from Germany into Poland.

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