September 26, 2023

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Gazprom , Russia’s energy giant, has informed Poland and Bulgaria that it will halt gas supply from Wednesday. This is a significant escalation in Russia’s wider row with the West regarding its invasion of Ukraine.

Since Moscow began what it calls a military intervention in Ukraine on February 24, 2018, Poland and Bulgaria will be the first to see their gas shut off by Europe’s main source of energy. This was also in response to sanctions that Warsaw imposed on Russian companies and individuals.

Russian President Vladimir Putin demanded that “unfriendly” countries agree to a program that allows them to open accounts at Gazprombank, make payments in dollars or euros for Russian gas imports, and then convert these into roubles.

The European Commission stated last week that it may be possible for EU companies to circumvent Russia’s demand for gas payments in roubles. If they pay in dollars or euros, which are then converted into Russian currency,

Poland is a strong political opponent to Moscow. Polish gas company PGNiG (PGN.WA), whose deal with Russia is due to expire at the end this year, said that it would not adhere to the new payment scheme and would not extend its contract.

Gazprom did not extend the gas transit agreement it had with Russia in 2020. The Russian gas provider has had to participate in auctions for capacity via the Yamal Europe pipeline, which runs from Belarus to Poland.

Gazprom supplies Poland with 10.2 billion cubic metres (bcm), which covers approximately 50% of its national consumption.

Data from the European Union network gas transmission operators had earlier shown that physical gas flows via Yamal-Europe had stopped, but resumed on Tuesday.

According to Poland’s climate ministry, energy supplies are safe and there is no need to draw on gas reserves. Gas to consumers will not be reduced.

The energy ministry also stated that Gazprom had informed Bulgargaz, a Bulgarian state gas company, that it would stop gas supplies starting Wednesday. A contract with Bulgaria was due to expire at year’s end. Gazprom imports more than 90% of the country’s gas requirements at approximately 3 bcm per year.

Tom Marzec Manser, head, gas analytics, data intelligence firm ICIS said, “This is Russia’s seismic warning shot.”

He said that Poland has been anti-Russian and anti-Gazprom for many years. However, this is not the case in Bulgaria. Therefore, to see Bulgaria cut off from NATO is a significant development.”

Poland stated it can source gas through two links with Germany, including a reverse flow from the Yamal pipeline. This link will connect with Lithuania and has an annual capacity 2.5 bcm. It will also open via an interconnector to the Czech Republic that will allow for 1.5 bcm.

A link to Slovakia could allow for another 5-6 bcm to be shipped. This link will be open later in the year.

PGNiG is also able to import up to 6 billion cubic meters per year through the LNG terminal at Swinoujscie, on the Baltic Sea. It also produces more than 3 billion cubic metres of gas annually in Poland. A pipeline that allows up to 10 billion cubic meters of gas per annum to flow between Poland, Norway and Poland will be open in October.

Officials from the government said that Poland’s gas storage capacity of 3.5 billion cubic meters is 76% full. They will not need to reduce supplies to customers in order to deal with Gazprom’s supply halt.

Bulgaria stated that it is working to find an alternative source of gas and that no restrictions are required on gas consumption at this time.

Jefferies, an investment bank, said that the warning raises the possibility of early terminations of European contracts that expire before the year ends. This amounts to almost 12 bcm per year.

Only a handful of Russian gas buyers such as Hungary or Uniper , Germany’s largest importer, have stated that it is possible to pay future supplies in accordance with the Moscow-approved scheme without violating EU sanctions.

Germany’s network regulator stated that it was monitoring Russia’s gas delivery situation after the threat to Poland and adding that Germany’s supply was currently assured.

PGNiG stated Tuesday that it will take steps to restore gas flow according to the Yamal contract. It also said that any halt in supplies is a breach of the Yamal contract.

On Tuesday, Poland made public a list of 50 Russian oligarchs, and companies, including Gazprom. They would be subject to sanctions as a result of a law earlier this month that allowed their assets to be frozen. This law is independent of any sanctions imposed by the EU countries.

Gas traders reported that the Dutch gas market, which is the European benchmark for the industry, rose near the close of trade on Tuesday. The Dutch gas contract for the first month settled 5.4% higher at 98.20 Euros/MWh.


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