Halts gas shipments

Russia halts gas shipments to Poland and Bulgaria

EU Commission President Ursula von der Leyen denounced the Russian action as ‘blackmail.

BY AMERICA HERNANDEZ AND ZOSIA WANAT

Russia's Gazprom halted gas deliveries to Poland and Bulgaria on Wednesday morning over their refusal to settle payments in rubles, setting off a political crisis over Moscow's reliability as an energy supplier to the EU.

"The announcement by Gazprom that it is unilaterally stopping delivery of gas to customers in Europe is yet another attempt by Russia to use gas as an instrument of blackmail," Commission President Ursula von der Leyen said Wednesday morning in a statement. "This is unjustified and unacceptable. And it shows once again the unreliability of Russia as a gas supplier."

Polish Prime Minister Mateusz Morawiecki called the move "a direct attack on Poland."

News of the surprise move came late Tuesday, when the Russian gas export monopoly notified its customers in Poland and Bulgaria it would halt gas deliveries.

"PGNiG received a letter from Gazprom announcing the complete suspension of supplies under the Yamal contract ... beginning April 27," said a statement from Polish gas utility PGNiG. On Wednesday morning, the company said, "there has been a complete shutdown of natural gas supplies."

Bulgaria's gas operator Bulgargaz obtained a similar note, the country's energy ministry said.

PGNiG said the Russian decision was related to the Polish utility's refusal to pay for its gas in rubles, as demanded by Russian President Vladimir Putin.

A decree signed by Putin on March 31 creates a process where foreign buyers of gas from so-called unfriendly countries — a list that includes Poland and other EU members — have to pay in rubles. EU countries have largely refused that demand, saying it breaks contracts denominated in dollars and euros.

The European Commission said that such payments would violate EU sanctions imposed after Russia invaded Ukraine.

"Gazprom Export has notified Bulgargaz and PGNiG of the suspension of gas supplies from April 27 until the payments are made according to the procedure outlined in the Decree," Gazprom said on Wednesday.

PGNiG said it continued "to settle its liabilities for natural gas delivered under the Yamal Contract in accordance with its current terms."

The Polish utility demanded that Gazprom resume gas deliveries. If that doesn't happen, it warned, "the Company reserves the right to claim damages."

"There is no contractual basis for the suspension of the supply of the gas delivered under the Yamal Contract," PGNiG said.

Bulgaria also balked at the demand to pay in rubles. The new Russian payment system is "at odds with the agreement that is effective until the end of this year and poses considerable risks for the Bulgarian side," said the energy ministry.

On Wednesday, Energy Minister Alexander Nikolov said: "natural gas is used as a political and economic weapon."

Despite Gazprom's shutdown of deliveries to Poland and Bulgaria, gas continued to flow through pipelines to other customers, and Gazprom warned Poland and Bulgaria not to take gas meant for other buyers.

Poland has vowed to end imports of Russian coal, gas and oil, and is pressing other EU countries to rapidly do the same.

"We are prepared for the complete cut off of Russian fossil fuels," Polish Climate and Environment Minister Anna Moskwa said in a news conference Tuesday.

Poland gets 46 percent of its gas, 64 percent of its oil and 15 percent of its coal from Russia, according to Forum Energii, a think tank. 

Polish authorities insisted that the cutoff won't affect gas users.

"Thanks to the implementation of the government's strategy of diversifying gas supply sources, PGNiG is prepared to obtain gas from various directions, including through gas connections on the western and southern borders and the LNG Terminal in Świnoujście," said PGNiG.

Moskwa said: "Poland has the necessary gas reserves and sources of supply that protect our security," adding that the country's gas storage was 80 percent full. She said Poland will continue to buy gas on European and international markets and aims to fill its reserves to 100 percent.

Bulgaria, which gets 90 percent of its gas from Russia, said it has "taken steps to ensure alternative supplies of natural gas and handle the situation. Measures to restrict consumption in Bulgaria are unnecessary at this stage."

Nikolov said the country has enough gas for the next month.

Neither Poland nor Bulgaria generate much electricity with gas, which is largely used for home heating and industry.

Poland's 1996 agreement with Gazprom expires at the end of the year, and Warsaw has said it won't be renewed. Piotr Naimski, in charge of strategic energy infrastructure, said that Poland was already planning to end Russian gas supplies, and that Gazprom's decision "speeds that up."

Russia's decision caused gas prices to spike. Month-ahead gas contracts on the EU benchmark TTF trading hub in the Netherlands jumped more than 20 percent on Wednesday morning to €125 per megawatt-hour before settling back to €108/MWh.