Russia begins cutting gas from the Netherlands after its government refused to pay in rubles

Russia’s Gazprom will halt gas supplies to partly Dutch state-owned energy company Gas Terra on Tuesday after it refused to pay in rubles in the wake of Russia’s invasion of Ukraine, the Dutch company said.

Meanwhile, Danish energy company Orsted warned on Monday that Russia may cut off gas supplies to Denmark for the same reason, but allayed concerns by saying the gas could still be secured through the European market.

Moscow has asked clients from “unfriendly countries” – including European Union member states – to pay for gas in rubles, in a way to evade Western financial sanctions against its central bank over Vladimir Putin’s February 24 attack.

The news came amid skyrocketing gas prices across Europe, and raised concerns that the Kremlin’s continued restriction of supplies could continue in that direction.

Energy prices in Europe hit record highs this year after the invasion of Ukraine by Russia, Europe’s largest gas supplier, with European leaders so far ruling out a higher price ceiling.

Elsewhere, European Union leaders gathered in Brussels hoping to persuade Hungarian Prime Minister Viktor Orban to accept a softened oil embargo against Russia as part of a sixth package of sanctions against Moscow, which Budapest has halted.

Hungary, which imports 65 percent of its oil consumption from Russia via the Druzhba pipeline, is seeking an exemption from the import ban.

EU members have proposed excluding the Druzhba pipeline from the embargo “for the time being” and imposing sanctions only on oil shipped to the EU by tanker. Orban calls it a “good solution” but seeks more guarantees on his country’s energy supply.

In a statement on Monday, the Dutch company said that the Dutch company Gas Terra “has decided not to comply with Gazprom’s unilateral payment requirements” because it would violate EU sanctions and create “financial and operational risks”.

“In response to Gastera’s decision, Gazprom announced that it will stop supplying from May 31, 2022,” the company said.

Gas Terra said the Russian energy giant’s move meant that 2 billion cubic meters of gas would not be supplied to the Netherlands between now and October, adding that it expected this by buying gas elsewhere.

“Jastera has repeatedly urged Gazprom to respect the contractually agreed payment structure and delivery obligations, but unfortunately to no avail,” she said.

The Dutch state directly owns a 10% stake in GasTerra plus another 40% through the state-owned gas company EBN. The rest is owned by energy giants Shell and Esso.

The Dutch government said it “understands” GasTerra’s decision.

“This decision has no consequences for the physical supply of gas to Dutch households,” Climate and Energy Minister Rob Getten said on Twitter.

The Netherlands is the latest in a series of European countries to be exposed to a cut in Russian gas.

On May 21, Russia halted supplies to neighboring Finland – angering Moscow by seeking NATO membership – after energy group Jasom also refused to pay in rubles.

Poland and Bulgaria saw Russian supplies cut off a month ago.

The government says the Dutch depend on Russia for about 15 percent of their gas supplies, which amount to about six billion cubic meters a year.

That’s below the EU average of 40 percent, but like other European countries, the Netherlands is striving to reduce its dependence on Russian energy.

Dutch Prime Minister Mark Rutte, in Brussels for an EU summit, as leaders struggle to agree on a Russian oil embargo, insisted that his country had no problem with energy security.

“I think there is no big problem with Dutch energy security, of course, we are all working to make sure that we maintain our stability in terms of our energy supplies,” he told reporters.

The Dutch government has already delayed the shutdown of a huge gas field in the northern province of Groningen, which has suffered frequent earthquakes due to gas extraction, to tackle the energy crisis.

Prime Minister of the Netherlands Mark Rutte arrives on the first day of the Special European Summit on Ukraine at the European Council, in Brussels, Belgium, May 30, 2022

Danish energy company Ørsted warned on Monday that Denmark could be the next country to cut off supplies of Russian gas.

Orsted, previously DONG Energy, has insisted that it will continue to pay for gas shipments from Russia in euros and that the deadline for payment is May 31.

Gazprom Export continues to demand that Ørsted pay for gas supplies in rubles. In a statement, the company said: “We have no legal obligation under the contract to do so, and we have repeatedly told Gazprom Export that we will not do so.

Therefore, there is a risk that Gazprom Export will stop supplying Ørsted with gas. In Ørsted’s view, this would be a breach of contract.

The company said that Russia cannot directly cut off gas supplies to Denmark because there is no direct pipeline between the two countries.

This means that the country must still be able to secure shipments of gas by buying it from the European market.

Ørsted said it was filling its storage facilities in Denmark and Germany to secure gas supplies for its customers.

In April, the Danish government announced plans to phase out Russian gas, including moving half of the 400,000 gas-heated homes to central heating or electric heating pumps by 2028.

Gas accounts for 18 percent of the energy consumed in Denmark each year. National production accounted for three-quarters of the gas consumed in 2019, and Russia was among the main sources of imported natural gas, according to the Danish Energy Agency.

Moscow has asked customers from “unfriendly countries” – including European Union member states – to pay for gas in rubles, a way to evade Western financial sanctions against its central bank over the February 24 attack.

The European Commissioner for the Economy said that European leaders, who will meet in Brussels on Monday and Tuesday for an EU summit, will not make a decision on imposing a cap on gas prices, but may authorize the Commission to study the issue.

“If this is agreed between member states, the Commission will act very quickly to analyze this possibility,” Paolo Gentiloni told reporters at the Foreign Press Association in Rome, adding that it would be difficult to make any predictions about the timing of a possible decision.

“It would be a really important step if the EU Council gives the commission the green light” to study a price cap mechanism, Gentiloni said.

Italy has suggested that European Union member states set a price cap on gas imports from Russia to help bring down inflation in the bloc, but other countries have raised doubts about the idea’s efficacy.

European Union leaders meeting in Brussels will try to agree on Russian oil import sanctions, in an effort to avoid showing discord over the union’s response to the war in Ukraine.

According to a new draft outcome of the summit, the 27 leaders must agree that the next round of sanctions will cover oil with a temporary exemption for pipeline-delivered crude, a compromise that ambassadors failed to agree on Sunday.

The text seen by Reuters, which may be amended again, confirms an agreement on seaborne oil sanctions, with sanctions on pipeline oil to Hungary, Slovakia and the sometime landlocked Czech Republic.

European Union leaders gathered Monday in Brussels in hopes of persuading Hungarian Prime Minister Viktor Orban (pictured in Brussels on Monday) to accept a softened oil embargo on Russia as part of a sixth package of sanctions against Moscow, which Budapest has halted.

Meanwhile, Russia is considering paying Eurobond holders by implementing the mechanism it uses to process its gas payments in rubles, although investors said the move would not enable Russia to avoid a historic debt default.

The scheme, according to the Kremlin and Russia’s finance minister, would allow Moscow to pay bondholders while bypassing Western payment infrastructure.

It comes days after Washington decided not to extend the license that allowed US creditors to receive bond payments while enabling Russia to avoid default.

The move by the US Treasury has pushed Russia one step closer to defaulting in hard currency. Foreign Eurobond holders are now waiting for two coupon payments that matured last week but have a grace period of 30 days.

Russia says it has cash and is willing to pay, dismissing any talk of default. Finance Minister Anton Siluanov said on Monday that Moscow will continue to service its foreign debt in rubles.

He told Vedomosti newspaper that in order for foreign Eurobond holders to receive payments in foreign currencies in accordance with Russia’s obligations, they will have to open accounts in rubles and hard currency in one of the Russian banks.