Gas prices surge by 15 percent as Russia refuses to back down on ruble payments

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Gas prices have risen around 15 percent to 300p per therm, six times the 10 year average. With energy costs soaring, Germany has been forced to declare an “early warning” with a crisis team convened. Speaking at a news conference Economy Minister Robert Habeck warned “every kilowatt hour counts”, with fears energy rationing could become necessary. The EU has been stuck in a standoff with Russia after President Putin announced natural gas exported to Europe should be paid for in rubles, in retaliation to sanctions.

In a further development Vyacheslav Volodin, speaker of the lower house of Russia’s parliament, has suggested the policy could also be extended to other commodities such as fertiliser and grain.

Such measures would likely provide a much needed boost to the ruble which has plummeted in value since the beginning of the invasion.

However, EU countries have so far rejected the demands, with Mr Habeck insisting contacts would be honoured on current terms.

The EU has recently outlined plans to cut its reliance on Russian gas by as much as 100 billion cubic meters by the end of the year.

But, for now, it remains heavily reliant with around 40 percent of supplies coming from Russia.

Despite a recent deal struck with the US to supply liquefied natural gas, analysts predict making up the shortfall from Russia will prove a serious challenge.

Research by consultancy Pantheon Macroecnomics concluded the EU is “in a tight spot” with a sudden stop in Russian energy likely to push Germany, and potentially the rest of the Eurozone, into recession.

While Germany’s recent alarm over supplies has raised prices today, the ongoing volatility threatens to continue to send prices further.

Nathan Piper, head of oil and gas research at Investec, warned: “Ultimately as unseasonably cold weather sweeps across Europe driving up gas demand for heating, with European storage levels low, any actual restrictions in supply will only push prices for industry and consumers higher.”

For the time being, gas is continuing to flow through pipelines from Russia with the Kremlin conceding the switch to ruble payments will take time.

President Putin has ordered Gazprom and the central bank to have plans ready for the switchover by March 31, though Kremlin spokesman Dmitry Peskov said on Wednesday ruble payments would not need to start then.

Leon Izbicki, European Natural Gas Associate at Energy Aspects, said: “We still believe that some form of compromise between Gazprom and its European clients is more likely than not owing to the potential economic ramifications for both Europe and Russia in case of a complete halt to gas flows.

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“The Kremlin’s announcement today saying that Russia will not demand an immediate switch to rubles reaffirms our conviction.”

While a halt in gas flows would have “significant repercussions for EU member states”, Mr Izbicki warned Russia would also suffer.

He explained: “Russia would lose yet another revenue stream since its pipeline gas supplies to Europe are not divertible, amplifying the negative shock of sanctions on its economy.”

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