Putin's message seemed to imply: ‘If you want our gas, buy our currency.’ Western sanctions had already cut the Ruble’s value by nearly 50% of its value against the US Dollar since the start of the year; sharply accelerating after Russia invaded Ukraine on 24 February 2022.

According to Platts Global Alert, the announcement ‘raised fears of new obstacles to purchasing Russian energy’, prompting both oil and gas prices to spike.

‘Russia’s demands for its energy exports to be paid in Rubles would amount to a security of supply threat,’ said Fatih Birol, Executive Director of the International Energy Agency, speaking at an IEA ministerial meeting on 24 March. He also suggested the measure could be widened to other commodities as well.

Just days later, on 28 March, energy ministers of the G7 group of major economies unanimously rejected Putin’s demand. Germany’s Economics and Energy Minister Robert Habeck, told a press conference in Berlin that G7 countries were prepared for all scenarios, including a potential halt to Russian energy supplies. He noted: ‘All G7 ministers agreed that [requiring payment in Rubles] would be a clear and unilaterial violation of existing contracts.’ 

Gas prices have continued to ‘see-saw’ between market fundamentals and geopolitical considerations.

Reinjecting volatility

Rystad Energy’s Senior Analyst Vinicius Romano reports that the Russian President has reinjected volatility on the TTF (Title Transfer Facility for gas futures) by ‘doubling down’ on last week’s order to demand payment from gas from unfriendly states in Rubles and directing that the Russian Central Bank and state gas producer Gazprom should present proposals to this effect by the end of March.

Adding pressure, Russian law maker Ivan Abramov has reportedly said supplies will stop if the Ruble payment mechanism is not honoured.

Romano points out that from a commercial perspective, ‘delivering below committed volumes may mean a contract infraction, which is usually accompanied by supplier penalties and in prolonged cases could lead to a breach of contract information and arbitrations’.

However, he maintains: ‘Because the European pipeline grid is highly connected, Russia cannot limit volumes to a specific country. This means that both the markets which might accept the proposed changes and those that do not, are likely to be affected by any attempts to restrict flows to certain markets.’

Meanwhile, the market is watching closely for the results of ongoing Russia-Ukraine negotiations. ‘Though not many are holding their breath for a breakthrough,’ remarks Romano.

Gazprom has reportedly sought payment from Indian buyer GAIL in Euros on the currently US Dollar denominated 2.5mn t/y sale and purchase agreements (SPAs) in Indian LNG markets. If implemented, this may set a precedent for other such SPA currency conversions.

The Russian statements had not yet been reflected in prices as market fundamentals reassumed the helm as New Energy World went to press, ‘indicating a bullish direction due to expectations of below normal temperatures in Europe for the next week’, explained Rystad Energy, coupled with lower wind output in Germany and an unplanned outage at France’s 900 MW Dampierre 1 nuclear power station.

However, despite Putin’s attempt to prop up the Ruble by compelling gas purchasers to buy the free-falling currency in order to pay, Russian gas flows have been relatively stable – at around 217mn cf/d to Western Europe. EU’s plans of signing new legislation to fill its storage (led by Germany) to 90% of capacity by 1 November, suggests intent to sustain robust gas purchases in the months ahead.

Awaiting details and a new US/EU initiative

The Russian plans, which have not yet been spelt out in detail, have prompted questions over how they will be implemented – particularly in the context of measures by the US and its partners to isolate Russia in response to the invasion of Ukraine, including sanctions on Russian banks. 

US President Joe Biden and EU Chief Ursula von der Leyen announced a new task force on 25 March aimed at reducing Europe’s reliance on Russian gas in the face of the war in Ukraine. The initiative will see the US work with partners to supply an extra 15bn m³ of LNG this year alone.

The European Commission is to work with EU member states to ensure the infrastructure is capable of receiving about 50bn m³ of additional LNG until at least 2030, according to a White House fact sheet. The US currently exports about 22bn m³/y to Western Europe.