Germany warns on gas supply over Russia payment rowon March 30, 2022 at 10:18 am

Germany has declared an “early warning” over possible gas supply disruption amid a payments stand-off with Russia.

Russia has demanded “unfriendly” countries pay for its gas in roubles, but the EU, which mainly pays in euros, has rejected the idea.

On Wednesday, German economy minister Robert Habeck urged consumers and companies to reduce consumption in anticipation of possible shortages.

Germany gets about half its gas and a third of its oil from Russia.

Berlin has pledged to reduce its dependence on Russian energy over time but warned it could face a recession if supplies stopped suddenly.

Under an existing gas emergency plan, the “early warning phase” is the first of three steps designed to prepare the country for a potential supply shock.

In its final stage, the government would bring in gas rationing.

Mr Habeck told a news conference that gas supplies were safeguarded for the time being, but added: “Nevertheless, we must increase precautionary measures to be prepared for an escalation on the part of Russia.

“With the declaration of the early warning level, a crisis team has convened.”

The head of German network regulator Bundesnetzagentur, Klaus Mueller, said in a tweet that the aim of the early warning was to avoid a deterioration of supply. He urged consumers and industry to prepare for “all scenarios”.

The West has been imposing sanctions on Russia in response to its invasion of Ukraine.

In response, Russian President Vladimir Putin has demanded that natural gas exported to Europe should be paid for in roubles.

Analysts say the move would support the country’s currency, which fell sharply after the invasion but has begun to recover.

Europe, which imports about 40% of its gas from Russia and pays mostly in euros, says Russia’s state-controlled gas giant Gazprom is not entitled to redraw contracts.

But Vyacheslav Volodin, the speaker of the lower house of the Russian parliament, said: “European politicians need to stop the talk, stop trying to find some justification about why they cannot pay in roubles.

“If you want gas, find roubles.”

He added that Russia could also start demanding payment in roubles for other commodities such as fertiliser, grain, metals and timber.

S&P Global energy analyst Laurent Ruseckas said Russia and the EU were involved in “a game of chicken” over who would back down first.

“Putin started it last Wednesday, with his first comment about requiring the change to payment in roubles, and now the EU has responded at a political level, saying: ‘Well, no, we won’t,'” he told the BBC World Service. “Something has got to give here.”

He said the most likely next step was for the EU and Gazprom to seek a compromise by redrawing contracts, as both sides have an interest in resolving the stand-off.

Russia currently gets €400m (£340m) per day from gas sales to the EU and it has no way of rerouting this supply to other markets.

However, Mr Ruseckas said there was a small chance “the brinksmanship leads very quickly towards a cut-off”. This would force Germany to run more coal plants, import as much liquified natural gas as possible, and in the longer term build more renewable energy production.