Page 5 - FSUOGM Week 14 2022

FSUOGM COMMENTARY FSUOGM

Russian President
Vladimir Putin wants
"unfriendly" countries
to pay for gas in rubles.
But his decree does not
go that far.

“If all the gas demand reductions were The ruble requirement
achieved, which we believe is unlikely, the gas Responding to the West’s unprecedented
supply requirement alone would be some 80 sanctions regime against Russia, President
to 85 bcm,” the OIES said. “Getting halfway Vladimir Putin warned in late March that
towards this through more LNG and pipeline buyers would be required to pay their gas
imports might be achievable, but much more bills in rubles rather than euros or US dollars.
than this would require very large diversions of However, the decree he actually signed per-
LNG from Asian markets, with significant con- mits buyers to continue paying in the usual
sequences for global gas prices. Even then, there currencies, although they will be required
may simply not be enough supply in the world.” to make payments into a special account at
Beyond 2022, the OIES said that maintaining Gazprombank. Gazprombank will then con-
and even stepping up the reduction in Russian vert the sums into rubles and place them into
supply would be “even more challenging on the another account held by the buyer, and will
supply side” in 2023 and 2024. then extract the sums from there.
“EU gas production is likely to continue its European buyers largely seemed unnerved
decline, while non-Russian pipeline imports are by the decree, as for them, the payment process
unlikely to increase significantly,” the OIES said. will be unchanged, except they will need to set
“If anything, the LNG market is set to be tighter up accounts at Gazprombank and deposit funds
in 2023 and 2024 as non-European demand there.
continues to grow, while the market waits for “The new ruble payment mechanism is
the next round of substantial supply additions in an even more urgent challenge for the buy-
2025-2027.” ers and is in itself a ‘take-or-pay’ proposition,
The medium-term impact of these measures where the buyer, in any event, would need to
will be sustained high prices and higher vol- bear the cost consequence,” the OIES com-
umes of European LNG imports throughout the mented. “Various considerations (financial,
2020s, the OIES concluded. operational, political and reputational) are at
“The stated aim of the REPowerEU strategy stake, which suggests that the response to the
to phase out EU dependence on Russian fossil new payment mechanism under the Decree
fuels by 2030 – at least from a gas perspective – is unlikely to be a smooth exercise. A supply
will depend strongly on demand-side measures, disruption in response to the perceived failure
while the prospect for sustained high gas prices to comply with the rules under the Decree as
for much of the intervening period strengthens early as May (when payments for gas deliv-
the case for investment in such demand-side ered in April are due) is, therefore, an emi-
measures,” the institute said. nently plausible outcome. ™

Week 14 06•April•2022 www. NEWSBASE .com P5