Wholesale gas prices up 15% as Germany plans for war disruption

Russian President Vladimir Putin ordered his government, the central bank and the state-run exporter Gazprom to prepare all necessary documents for the switch in payments to roubles by March 31. Picture: AP

European energy prices surged as top consumer Germany activated an emergency plan to secure supplies, preparing for a potential disruption to Russian natural gas flows.

Benchmark gas futures jumped as much as 15% after the German government initiated the first phase of its strategy, signalling the potential for the supply situation to deteriorate. German power prices also rallied. 

The move comes as Russia plans to tell buyers to pay for its gas supplies in roubles as soon today, a demand G-7 nations have unanimously rejected.

“There have been several statements from the Russian side that, if that doesn’t happen, deliveries will be stopped,” German Economy Minister Robert Habeck said. He added that the latest move was a precautionary decision. 

Europe has been trying to cut its dependency on Russian energy in response to the war in Ukraine. 

Germany and other nations have rushed to announce new projects to bring more liquefied natural gas to the continent, while governments have held talks with industries to ration energy in the event of a supply cut.

France is also preparing for a potential curtailment to energy supplies. The nation’s gas distributor expects the French government to publish a decree in the coming days outlining plans for possible gas rationing, GRDF head Laurence Poirier-Dietz said in an interview. 

“Clearly Moscow is trying to bully western governments dependent on Russian energy to force them to pay in rubles and thereby break the broader sanctions strait jacket around Russia,” said Timothy Ash, a sovereign debt analyst at BlueBay Asset Management.

Dutch gas for May delivery rose as high as €125.34 a megawatt-hour, before closing at around €120 a megawatt-hour. The German power contract for May climbed as much as 9.3% to €273. 

Russian President Vladimir Putin ordered his government, the central bank and the state-run exporter Gazprom to prepare all necessary documents for the switch in payments by March 31. 

“Nobody will supply gas for free,” Kremlin spokesman Dmitry Peskov had said this week. “And it can only be paid for in roubles.”  The process of switching to roubles payments for Russian gas export deliveries will take time and won’t begin immediately this week, Mr Peskov had said. 

President Putin and German Chancellor Olaf Scholz agreed that experts on both sides should discuss Russia’s demand to switch gas payments to rubles, the Kremlin said in a statement.

The Russian leader also discussed the decision with Italian Prime Minister Mario Draghi and their French counterpart Emmanuel Macron. President Macron told President Putin that it wasn’t possible for buyers in the West to pay their bills in roubles, Reuters reported, citing an unidentified official.

For now, supplies from Gazprom through key pipeline routes, which cover about a third of gas demand in Europe, continue uninterrupted. 

Yet, the continuing war in Ukraine and uncertainty over future gas shipments is keeping traders on edge. The recent round of peace negotiations briefly spurred some optimism, though the talks didn’t result in a cease-fire agreement. 

Bloomberg