Why is Russia unaffected even when cutting gas to Europe?

Export Russian gas to Europe has fallen by more than a quarter since January, according to CNN. However, high gas prices have made Russia’s coffers increasingly rich despite Moscow continuing to cut exports.

Russian gas exports to countries outside the Commonwealth of Independent States – which includes 11 countries in Central Asia and Eastern Europe – fell by almost 28% in the first five months of 2022 – Russian state energy corporation Gazprom said on June 1.

Hitherto, Gazprom cut at least 20 billion cubic meters of gas annually to customers in six European countries – Poland, Bulgaria, Finland, Denmark, Germany and the Netherlands – because they did not pay in rubles on demand from in March by Russian President Vladimir Putin.

This represents nearly 13% of the European Union’s total annual gas imports from Russia, according to International Energy Agency (IEA) data.

But James Huckstepp, head of gas analysis for Europe, Middle East and Africa (EMEA) at S&P Global Commodity Insights, told CNN that gas price increased to an average of $102/megawatt-hour in 2022 from last year.

It is therefore unlikely that Russia will experience significant revenue losses until further cuts are made, Huckstepp said.

Since President Putin’s ultimatum, Gazprom has offered the client an alternative. Buyers can make payments in euros or USD to an account at Russia’s Gazprombank, which will then convert the money into ruble and transfer them to the second account for payment to Russia.

Many large customers have accepted Gazprom’s payment plan, but there are also customers who object. On May 31, Shell announced that it did not agree to new payment terms, leading to Gazprom stopping gas supplies to Germany. Similarly, the Netherlands’ GasTerra said in a statement on May 30 that it would not comply with Gazprom’s “unilateral payment requests”.

Either way, the EU is rapidly reducing its dependence on Moscow, increasing imports of liquefied natural gas (LNG) and pledging to cut Russian gas imports by 66% by the end of the year.

Countries are also racing to fill gas storage facilities before winter to avoid potentially catastrophic supply shocks. The EU has set a target for member states’ gas reserves to be at least 80% by November.

Germany, the EU’s largest economy, is particularly dependent on Russian gas to power its households and heavy industry, but has managed to reduce its share of Russian imports from the 55% to 35% before the start of the war in Ukraine.

Russia may not yet feel the impact. According to data from the US Energy Information Administration, the EU is the largest EU gas buyer, oil prices and natural gas spikes boosted Moscow’s revenue.

According to a report by the Center for Research on Energy and Clean Air, the EU imported fossil fuels from Russia up to $ 47 billion in the two months after Russia launched a military operation in Ukraine, double the value of the same period. year 2021.

Some of Europe’s biggest energy companies have begun the process of opening new accounts with Gazprombank to keep gas flowing, despite claims by EU officials that such a move would violate Union sanctions against Russia.

But as Europe turns its back on Russian gas in the coming months, it will be difficult for Moscow to find alternative buyers – as it has done for oil – as Russia’s gas exports are mainly supplied via pipelines. , which can take years to build.