RUSSIAN GAS FOR GERMANY IN ROUBLES

PLATTS - 30 Mar 2022 - Russian President Vladimir Putin on March 30 briefed German Chancellor Olaf Scholz on Moscow's plans to switch to ruble-based pricing for European gas supply contracts, with experts from both countries set to discuss the issue further, the Kremlin said in a statement.

The two leaders spoke on the telephone, with Putin telling Scholz of the "substance" of the decision to switch to rubles for paying for Russian gas supplied "in particular to Germany," it said.
"The change in the procedure for settlements is introduced due to the fact that, in violation of international law, the foreign exchange reserves of the Bank of Russia were frozen by the EU member states," the Kremlin said.

"It was noted that the decision taken should not lead to a deterioration in contractual conditions for European companies importing Russian gas. It was agreed that the experts of the two countries would additionally discuss this issue."

Putin also spoke on the telephone March 30 with Italian Prime Minister Mario Draghi to whom he also gave "explanations" in connection with the decision to switch to rubles in payments for gas supplies to a number of countries, "including Italy," the Kremlin said.

Russia is to draft its proposals for a switch to ruble-based pricing in EU gas supply contracts by March 31 after an order from Putin.

Earlier March 30, Kremlin spokesman Dmitry Peskov said the switch by Moscow to ruble-based pricing for European gas buyers would not take effect immediately on March 31.

Quoted by Russian news agency Tass, Peskov said arrangements on payments and supplies required a "lengthy process."

"This does not mean that all [gas] that will be supplied tomorrow should be paid for [in rubles] by that evening," Peskov said.

G7 rejection

Scholz last week dismissed the move by Moscow, saying Russian gas supply was carried out under fixed contracts that include the currency type for payments, which are mostly in euros or dollars. "That's what counts," he said.

Germany and Italy were also signatories to a joint statement on March 28 by the countries of the G7 -- which also include France, Japan, Canada, the US and the UK -- rejecting the move by Moscow to switch to ruble payments for gas.

In the statement, the G7 countries reaffirmed that agreed contracts for gas deliveries "must be respected since most of the gas supply contracts explicitly stipulate payment in euros or dollars."

"The G7 partners therefore agreed to call on the companies based in their countries not to accede to such demands."

Putin's order was for a shift to payment in rubles for gas supply to the EU "and other countries that have introduced restrictive measures against citizens of the Russian Federation and Russian legal entities."

The European gas market remains on tenterhooks over the issue, with growing fears that Russia could envisage halting gas supplies if European buyers refuse to transact in rubles.

European gas buyers have been tight-lipped about the change, with companies contacted by S&P Global declining to comment.

However, trading sources have said they have mixed feelings about the issue. "I think that we'd like to keep our contract," a source said.

"We need the Russian gas to stay alive as a company, but in Ukraine people are physically trying to stay alive," the source said.

It remains to be seen exactly how the Russian plan will be implemented, with the market anxiously awaiting the details expected on March 31.

Germany on March 30 declared an early warning in its national gas emergency plan amid fears that Moscow could cut deliveries to European buyers that refuse to pay for supply in rubles.

European gas prices jumped sharply on the announcement, with the TTF month-ahead price up by 17% to an intraday high of Eur125/MWh in early trading, according to ICE data.

The contract was priced at Eur106.50/MWh on March 29, according to Platts assessments by S&P Global Commodity Insights.

The early warning declaration is the first sign from a European country that Russian gas supply disruption is seen as a true, possible outcome of the standoff over the ruble payments.

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