What is possible future of Russia in European gas markets?

RUSSIA ENERGY / FINANCE - In Brief 26 May 2022 by Marcel Salikhov

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The supply of natural gas from Russia to the EU is one of the strong points of tension between the countries. The EU officially plans to stop Russian gas supplies until 2027. Russia, in turn, demands to change the scheme of payments for natural gas. In May, Russia halted gas supplies to Bulgaria, Poland, and Finland. In 1M22 Russian pipeline gas exports decreased by 34.2% (-7.2 bcm). The Federal Customs Service (FTS) of Russia stopped publishing customs statistics, which makes it difficult to assess the situation with gas supplies. According to our estimates, gas exports in 4M22 amounted to 60 bcm (-17.2% yoy). The average export price in 1Q22 was $606 /tcm. We expect pipeline gas exports to decline by 18.3% in 2022 due to a 30% reduction in supplies to the European market (-45 bcm). Chart 1. Exports of pipeline natural gas from Russia Source: FTS, IEF estimates On March 23, President V. Putin announced the need to switch to payments in RUB for gas supplies to "unfriendly countries." On March 31, a "Decree on a special procedure for the fulfillment by foreign buyers of obligations to Russian suppliers of natural gas" was signed. Russia demands European customers to open accounts in Gazprombank and pay for gas supplies there. Gazprombank will convert FX to RUB and send it to Gazprom. The proposed payment scheme seems to be acceptable. The main restrictions on the part of European counterparties lie in the political sphere. European countries have taken different positions on this issue. Some countries have refused, and some of them have accepted the new scheme. The new payment scheme proposed raises the question of the extent to which it contradicts and leads to breache...