President Vladimir Putin says Europe currently has no alternative to Russian gas supplies, and any attempt to wean off those deliveries will have massive, negative consequences for the continent’s economy.
“A reasonable replacement for Europe simply does not exist,” Putin said in a televised speech while opening a meeting on current challenges for Russia’s energy businesses.
“There are simply no spare volumes in the global market, and deliveries from other countries, primarily the United States which may be sent to Europe, will cost the consumers many times more.”
The warning comes as European companies and governments are weighing up how to respond to an order from Putin to start paying for their gas in rubles. They risk a cutoff in supplies if they don’t comply.
The European Commission has said that switching to the Russian currency would violate sanctions imposed on Moscow following the invasion of Ukraine. Companies have just weeks to decide what to do: the decree applies to April deliveries, and most of those payments fall due in May.
Earlier this month, Putin warned that any refusal to pay in rubles would result in a cutoff of deliveries.
At Thursday’s meeting, Putin didn’t reiterate his warnings of any potential cutoffs, but he said his government sees “issues with payments for Russian export energy supplies, as banks from the unfriendly states delay money transfers.” He didn’t elaborate.
The Bank of Russia has proposed setting up a working group to discuss the clearing issues, Putin said in closing remarks that were broadcast later. “We will create it shortly and continue the work,” he said.
In the meantime, Russia will work on weaning itself off a reliance on energy buyers from the West, Putin said.
“We will assume that in the foreseeable future, westbound energy supplies will be shrinking,” he said. “This is why it’s important to solidify the trend of the past several years, and step by step redirect our exports to the fast-growing markets of the south and the east.”
In his closing remarks, Putin called for the expansion of Russia’s oil and gas export networks and raising the capacity of Arctic and Pacific oil ports. He ordered the government to prepare a plan for building the additional infrastructure by 1st June.
Some redirection of Russian volumes is happening now in the oil market. Many key buyers are either refusing to take Russian cargoes or have pledged not to once their contracts expire. Still, Russia has been able to send some of the oil flows to Asia, luring buyers with deep discounts.
Redirecting Russian natural gas flows from Europe to Asia isn’t possible because the nation’s eastbound and westbound pipeline systems operate independently. Gazprom PJSC is considering building an interconnector if it signs a third supply contract with China.
•By Bloomberg|Rigzone Staff