Gas prices rise in Europe after Russia cuts supply through Poland

Shortly after Finland announced its intention to apply for NATO membership, Russia has decided to suspend gas supplies to Europe via the Polish branch of the Yamal-Europe pipeline. The flow of gas from this pipeline, which starts in the Arctic and ends in Germany, has been halted on the Polish side due to sanctions imposed by Moscow against European companies. One of the sanctioned companies is EuRoPol GAZ S.A., an investor and owner of the Polish section of the Yamal-Europe pipeline.

According to Gazprom spokesman Sergey Kupriyanov, as reported by the Interfax news agency, "it is forbidden to use the pipeline belonging to the EuRoPol GAZ group to transport Russian gas via Poland". According to the Russian state-owned company, "the Polish side had repeatedly violated Gazprom's rights as a shareholder of EuRoPol GAZ and on 26 April 2022 included Gazprom in the list of sanctioned parties", which blocks "the company's ability to exercise rights to shares and other securities of EuRoPol GAZ, and to receive dividends". 

Yamal-Europe is capable of supplying 32.9 billion cubic metres of gas per year. However, as the TASS news agency points out, this route for transporting gas to Europe has been virtually unused recently due to a lack of requests from European consumers.

As a result of Russia's announcement, gas prices in Europe have soared by more than 20%. However, this figure is increasing in countries such as the UK, where the value of gas has risen by 37%, according to Bloomberg.

Moscow's pressure on Europe continues to mount. This move comes shortly after Gazprom cut off gas supplies to Poland and Bulgaria for not paying in roubles, as the Kremlin had demanded. Meanwhile, Finland is also preparing for a possible suspension of supplies. The local newspaper Iltalehti warns of a Russian gas cut-off on Friday, citing unnamed sources. However, the Finnish government announced in early May that it was prepared for the possibility of its eastern neighbour cutting off supplies at the end of the month, as Helsinki refused to pay in roubles. 

The energy outlook on the continent could worsen as the war in Ukraine develops and tensions between Russia and NATO rise. According to experts at Allianz Trade, quoted by El Economista, the disruption of Russian gas imports could cause serious disruption to energy supplies in many EU member states.

In the event that all Russian energy exports are suspended in the third quarter of 2022, countries that rely heavily on Russian gas, such as Bulgaria, Hungary, Germany, the Czech Republic, Slovakia, the Netherlands, Austria, Romania, Italy and Poland, would face the greatest difficulties next winter.

For this reason, some importers of Russian gas are considering opening a rouble account with Gazprom, as is the case of Italy. Italian Prime Minister Mario Draghi has stressed that European companies will be able to pay for gas in roubles without inflicting the sanctions imposed by Brussels.

"Nobody has ever said anything about whether payment in roubles violates sanctions," Draghi said, according to Bloomberg. "In fact, most gas importers have already opened their rouble account with Gazprom," he added. He may be referring to VNG, a German company that plans to transfer the next payment for Russian gas in euros, which will then be converted into roubles in Russia, according to Reuters. Another German company, Uniper, is also considering the possibility of starting to pay for gas imports under the new measures demanded by Moscow.

However, European Commission President Ursula von der Leyen has been very clear on the issue. Several weeks ago she declared at a press conference that payment in roubles, "if not foreseen in the contract", is a violation of sanctions. 

In addition to the fear of an energy cut-off by Moscow, the war in Ukraine could aggravate the continent's energy crisis. This week, the Ukrainian authorities suspended a third of the flow of Russian gas to Europe via Sokhranivka due to "force majeure".

This loss, as noted by SEB analysts quoted by Bloomberg, is "not dramatic", although it "sends a signal of what could happen in the future". "This is not a crisis, but it is a wake-up call of what is to come. We are likely to see more supply disruptions in the future," the Swedish financial group warns.

A total of 31 companies have been sanctioned by Moscow. Among them are former European subsidiaries of Gazprom, traders and operators of underground gas storage facilities, reports TASS. In addition, companies from Singapore and the United States are also included.

Among those sanctioned is Gazprom Germania, which operates several gas facilities in Germany, but also has projects in Serbia, Austria and the Czech Republic. The German economy minister, Robert Habeck, has already announced that some of the company's subsidiaries are not receiving gas due to the sanctions. In this sense, Habeck accused Russia of using energy "as a weapon", although he assured that there is no need to declare an alert level in view of this decision.

"The situation is under control and gas is flowing to Germany," he said. However, as the Economy Minister acknowledged, "it can get worse", according to the German media DW. Habeck also announced that Berlin is in the process of acquiring energy from other sources. This includes Qatar, which in recent months has positioned itself as an alternative to Russian gas in Europe.