European gas prices soar after Moscow imposed sanctions on EU energy companies

European gas prices soar after Moscow imposed sanctions on EU energy companies

Russia’s state-owned gas company has announced it will cut supplies to Europe through a major pipeline, sending prices skyrocketing and increasing President Vladimir Putin’s willingness to use energy as a weapon against the EU.

Gazprom said gas flows through the Yamal pipeline are no longer possible after the Kremlin imposed sanctions on European gas companies late on Wednesday. The companies sanctioned include some of its own former entities as well as Europol Gaz, the owner of Yamal. The pipeline runs from Russia to Germany via Poland.

“A ban on transactions and payments to companies under sanctions has been implemented,” Gazprom said in a statement. “For Gazprom, this means a ban on using a Europol Gaz gas pipeline to transport Russian gas through Poland.”

The move cuts the flow of Russian gas to Europe from a second pipeline in as many days and underscores Moscow’s appetite to push through with warnings to halt gas supplies to Europe.

“Overall, the situation is getting worse,” said Federal Minister of Economics Robert Habeck. “Once again it is clear that Russia is using energy as a weapon.”

The retaliation has pushed up gas prices. Futures contracts linked to TTF, the European wholesale price benchmark for gas, rose about 13 percent on Thursday to about 106 euros per megawatt-hour, more than four times the level a year ago.

Prices rose from a low of around €90 per megawatt-hour this week as Russia’s gas supply to the continent faced new threats.

Electricity prices also rose. According to Refinitiv, the prices for German electricity will reach their annual high so far next year at over 230 euros per megawatt hour.

On Wednesday, Ukraine’s pipeline operator halted the flow of gas from one of the two major pipelines bringing Russian gas through the country to Europe, citing interference from Russian occupying forces.

While very little gas has flowed through the Yamal-Europe pipeline in recent weeks, the pipeline is reliant on rising gas demand.

Tom Marzec-Manser, head of gas analytics at ICIS, a commodities data company, said sanctions on Europol Gaz could pose problems for Germany’s energy security next winter if demand for gas picks up.

The sanctions from Moscow, said to have been imposed in response to a string of Western sanctions, also ban Russian companies from selling gas or doing business with Gazprom Germania, a group of gas trading and storage companies acquired by the German government last month.

Gazprom Germania’s assets include Rehden, Germany’s largest gas storage facility, which accounts for about a fifth of the country’s total capacity, and the major German gas distributors Wingas, WIEH and WIEE, which source supplies from Gazprom.

Germany acknowledged that Russia’s actions are already having an effect. Habeck said supply fell by 10 million cubic meters per day, or 3 percent of the gas supplied by Russia on an annualized basis. But he insisted it was “manageable.”

“The quantities can be obtained from other sources in the market and that is the task we face, buying these quantities,” he said. “The federal government will do everything to stabilize Gazprom Germania.”

He said the situation did not justify raising a gas supply alert, adding that Germany had “prepared for this situation as well as all other possible scenarios”.

Moscow’s sanctions could cut Europe’s gas supply by 13 billion cubic meters, according to modeling by the Oxford Institute for Energy Studies. Russia supplied the EU with 155 billion cubic meters of gas last year, or about 40 percent of its needs.

Michael Müller, chief financial officer of RWE, one of Germany’s largest gas buyers, said they are evaluating the impact of the sanctions but assume the Russians “wouldn’t necessarily fill Gazprom Germania’s gas storage facilities.” . These facilities were exhausted before the start of the war after Russia withheld supplies over the winter.

The European Commission said it was “investigating the Russian decision on sanctions against certain EU companies and the impact on the EU’s gas security”.

The move underscores the need to reduce dependence on Russian energy. It will present a proposal to promote alternative supplies, renewable energy and hydrogen on May 18th.

Gas traders have focused for weeks on a new ruble payment mechanism that Russia has been asking for, which has seen Poland and Bulgaria cut off from Russian gas and could flare up again later in May if payments from more European buyers are due.

Additional reporting by Andy Bounds in Brussels

This article has been modified from its original publication to correct Michael Mueller’s title

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