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The game of energy poker is getting scarier

edited May 1 in Other Investing
Russia cuts off gas to two European countries. Who’s next?

Following are edited excerpts from a current article in The Economist.
Not long ago it seemed that the game of energy poker being played by Europe and Russia, though dangerous, was under control. After all, Europe imports 40% of its gas from Russia, which in turn makes about €400m ($422m) a day from its sales. On April 27th, however, Russia upped the ante: Gazprom, a state-owned energy giant, stopped sending gas to Bulgaria and Poland after they missed the deadlines that Russia had set for paying in roubles.

The immediate effect of Russia’s latest move, which the EU has described as being a breach of contract, is limited in scope.

Exactly who might be cut off next is not clear. The stakes are high. It is not that Europe needs the gas now: as temperatures rise, consumption is ebbing. But the bloc’s stocks are only at 33% of storage capacity. The European Commission has urged member states to ensure that their facilities are 80% full by November, implying a spike in demand to come.

Still, if Russia were to cut off big importers, it would deprive itself of some of the cash it needs to fund a costly and protracted war. So who will fold first?

One country being cut off could have knock-on effects on others, for instance if gas transits through it to other places. Nor is it clear whether Russia might eventually turn the taps off anyway.

If Germany, say, were cut off, gas markets would go haywire. European prices are already six times higher than they were a year ago. They would soar to new peaks, luring more LNG from the rest of the world and causing prices elsewhere to rise in turn. Jack Sharples of the Oxford Institute for Energy Studies, a think-tank, reckons a full shutdown of Russian gas to Europe may well cause a global recession. Russia’s game of poker is getting scarier—and those losing their shirts could include bystanders, too.

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Link to The Economist article (subscription required)

Comments

  • edited May 1
    The link does not work. Read elsewhere that Russia demands the payment in rubles instead of Euro or US dollar as stated in the sale contract. It is a way to prop up the rubles when Russia is experiencing high inflation near 16% since the Ukraine invasion. https://statista.com/statistics/276323/monthly-inflation-rate-in-russia/

    Don't know how to resolve this since the Russian demand would constitutes a breach of the terms of the contract. What a mess!
  • edited May 1
    @Sven- I always test each link that I post. I just tested this one again and it seems to work fine, but then we subscribe to The Economist. What happens when you try it?
  • edited May 1
    @Old_Joe,

    Your link works fine but I can't read the entire article since I don't have a subscription to The Economist.
    I can access The Economist online via my local library system.
  • Ah, they didn't mention any of that in their "free link". Thanks.
  • I don't know how often Economist updates. Barron's reported that the EU countries are going to comply with this gas-for-ruble demand ASAP (LINK). This is also confirmed by other sources (LINK2).

    "EMERGING MARKETS. Russia stopped NATURAL GAS supplies to Poland and Bulgaria because they had refused to pay for gas in rubles. Other EU countries that also had refused said that they will now comply ASAP – either via euro payments to Gazprombank that will be converted immediately into rubles or pay in rubles directly. But the EU remains firm in its anti-Putin stance in other aspects."
  • @old_Joe, no worry. It is me for not being a subscriber to The Economist and our local library has limited subscription. Will check out the annual subscription.

    @yogibb, thanks for the links provided.
  • @yogibearbull- Thanks for your help on this story. I just checked NPR, The Washington Post, The NY Times, The Wall Street Journal, The Economist, and The Guardian for further news on this, but there doesn't seem to be any updates at this point. I guess that we'll have to wait a while to see how this plays out.
  • edited May 2
    "EU comes to the crunch over Russia’s demands to pay roubles for gas"
    Here are heavily edited excerpts from the latest on this from The Guardian:
    Europe is facing a crunch point in mid-May when EU member states will have to reject Moscow’s demands for fuel payments to be made in roubles – despite being without alternative gas supply, Brussels has warned.

    Kadri Simson, the European commissioner for energy, said on Monday that the Kremlin’s demands had to be rebuffed despite the risks of an interruption to supply at a time that the shortfall cannot be made good.

    After a meeting of EU energy ministers, Simson said that all the energy ministers had accepted that paying in roubles through the mechanism set out by Russia would breach sanctions imposed by the bloc after Russia’s invasion of Ukraine.

    She added that she had not heard of any European energy company that was preparing to comply with Moscow despite suggestions to the contrary from Gazprom and firms such as MOL of Hungary.

    It is understood that the next major date for payments for gas by European energy companies is 20 May. The potential standoff comes as the EU considers phasing in a ban on Russian oil, a move that Germany’s economy minister, Robert Habeck, said on Monday would lead to a major economic hit and higher prices for consumers.

    He said: “We will be harming ourselves, that much is clear. It’s inconceivable that sanctions won’t have consequences for our own economy and for prices in our countries.

    “We as Europeans are prepared to bear [the economic strain] in order to help Ukraine. But there’s no way this won’t come at a cost to us.”
    Hopefully free link to The Guardian article
  • If the above is correct it seems like May 20 might be interesting. Somebody's going to have to back down, one way or another.
  • There is also May 25 US deadline (unless extended) when all dealings with Russian payments (in dollars or rubles) for the US investors will stop except upon specific licensing. https://uk.finance.yahoo.com/news/russia-faces-increased-risk-of-default-as-key-us-sanction-exemption-expires-in-may-171159894.html
  • edited May 3
    It gets complicated. India and China cannot buy all that oil (even at a discount price). Also storage is limited. Zero COVID policy in several large cities have greatly reduced China’s oil demand so far.
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