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Russian Sanctions Drive Europe Further Into Gas Crisis

Shipments of Russian natural gas to Europe have been further disrupted by Russia-imposed sanctions, sending prices soaring higher on Thursday.

The Natural Gas EU Dutch TTF, a leading benchmark, saw contracts jump over 20% to settle nearly 11% higher, as flows to Germany were reduced and Russian Gazprom said it could no longer use the Polish section of the Yamal-Europe pipeline to transit gas to Europe as a result of retaliatory sanctions from the Kremlin.

Source: Trading Economics

While Bloomberg reported that shipments from Russia to Europe via Ukraine were on track to decline by around 30%, Germany has remained adamant that the reduced flows will not have a major impact, with German Economy Minister Robert Habeck saying the cuts represented only around 3% of the country’s total natural gas imports.

Russian President Vladimir Putin has decreed that Russian entities are banned from making deals with sanctioned companies, including for contractual arrangements for existing deals.

On Wednesday, Putin added some 30 entities to its sanctions list, including its own Gazprom subsidiaries in Europe. That move makes it impossible for Gazprom to transit gas to Europe through the Polish section of the Yamal-Europe pipeline, which is owned by EuRoPol GA, a joint venture between Gazprom and Poland’s PGNiG. 

The Yamal-Europe pipeline runs through Russia, Belarus, Poland and Germany. In late April, Russia cut off gas to Poland and Bulgaria for refusing to pay for gas in rubles. Since then, the pipeline has been operating in reverse mode to send gas from Germany back to Poland.

Also on Wednesday, Ukraine halted Russian natural gas flow to Europe from a major transit point, citing disruption from occupying Russian forces. The transit point in question typically handles over 32 million cubic meters per day of natural gas–equivalent to around one-third of Europe’s Russian gas intake.

By Charles Kennedy for Oilprice.com

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