Russia’s Gazprom cuts gas supply to Shell as it refuses to pay in ruble

Europe, News June 2, 2022 , by IRIA No Comments

Russia’s largest state-owned gas company Gazprom said that it has completely suspended gas supply to Shell and Denmark’s Orsted for their operations in Germany as both companies refused to make payments in the ruble.

Gazprom made an announcement through its Telegram channel that Shell Energy Europe had notified that “it does not intend to make payments under the contract for the supply of gas to Germany in rubles. As of the end of the business day on May 31 (the payment deadline stipulated by the contract), Gazprom Export had not received payment from Shell Energy Europe Limited for gas supplies in April,” the Russian company wrote.

“Gazprom Export notified Shell Energy Europe Limited of the suspension of gas supplies under this contract from June 1, 2022.” the statement read.

Gazprom supplies approximately 1.2 billion cubic meters of natural gas to Shell every year, which accounts for 1.3% of the total 95 billion cubic meters of natural gas that Germany consumes each year.

The move from Gazprom has come after European Union leaders said that they would make alternative arrangements to block Russian gas supply to Europe by the end of 2022 to punish Moscow for its invasion of Ukraine. Global gas giant Shell had also announced that it would continue to systematically phase out the Russian supply of fossil fuels.

After Gazprom made the announcement, Shell assured its European customers that it would continue to provide an uninterrupted gas supply through other sources, even after Russia halts supply.

Contracts for Russian gas to Europe transported via pipelines are typically carried out in euros, however, following the Russian invasion of Ukraine the Russian President Vladimir Putin issued a decree on March 31, that demanded all natural gas payments to be made in ruble instead of dollar or euros. This required all gas purchasing companies to open a euro and ruble account in Gazprombank to process their payments.

^{A worker adjusts a valve wheel on a section of pipework in the Comprehensive Gas Treatment Unit No.3 of the Gazprom PJSC Chayandinskoye oil, gas, and condensate field, a resource base for the Power of Siberia gas pipeline, in the Lensk district of the Sakha Republic, Russia. (Image Credit: Andrey Rudakov/Bloomberg)}

In response to the western sanctions, Russia has already cut off the gas supply to Poland, Bulgaria, Finland, and the Netherlands, after the countries refused to comply with Russian demand to switch payments in rubles.

Europe gets about 40% of its natural gas from Russia, but some countries are more dependent on Russian fossil fuels than others, therefore sudden supply cuts could have a huge economic impact. Countries have been filling gas storage sites ahead of winter due to the threat of Russian gas supply cuts. So far, no sanctions have been put in place by the EU on Russian gas exports, however, the plans for the Nord Stream gas pipeline project from Russia to Germany have been frozen.