BAKU, Azerbaijan, Apr.1. EU countries must start the procedure to ration gas demand, said senior analyst at Rystad Energy consulting company Vinicius Romano, Trend reports.
Russia has made a statement saying that gas buyers should open a ruble account in Russian banks and the payment will be made for gas delivered April 1 onwards.
“The insistence on ruble payments may come back to haunt Russia as financial issues aside the interconnected nature of Europe’s gas infrastructure make it very difficult to cut flows to friendly vs unfriendly countries,” noted the analyst.
Romano believes that if buyers keep following the current contract rules, a unilateral halt in flows from Russia could lead to consequences for the supplier, as buyers may trigger the Failure to Deliver clause, opening up the possibility to claim penalties from Gazprom.
“Russia does not have an alternative consumer market to deliver its natural gas to which implies that stopping flows would also stop income. Production could briefly be redirected to the country’s storage until that is filled to capacity, before potentially getting flared and in an extreme scenario, obligating fields to shut down operations and deal with possible damages before restarting in the future,” he said.
The expert pointed out that for Europe a quick halt in supply would impact countries in different ways.
“Some of them have access to LNG facilities and could replace part of the full volume. Many countries would have to prioritize supply for residential and the power sector, avoiding cuts to essential sectors. Eastern Europe would be the most affected due to the low availability of alternative sources and could be more exposed to energy black outs. In order to manage risks, European countries must follow Germany’s example and start a procedure to ration gas demand and prepare for an eventual supply cut. From the limited upward movement on the TTF so far, it appears the market is still digesting this news and is unsure as to how to react,” added Romano.
The analyst noted that some countries such as Germany may have come to terms with the possibility of a cut.
“Russia also has the challenge to manage the eventual halt, once Europe has a strongly connected pipeline grid and the action might even impact countries that accept Russian demands for ruble payments. If implemented, this action would be completely against the commercial nature under which these contracts were signed and is likely to incur losses for both sides.”
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