Russia to cut off some German gas

Gazprom (GZPFY)the Russian energy giant, announced on Tuesday that it would suspend natural gas exports to Shell (SHLX) from Wednesday because the company had not made payments in rubles.

“Shell Energy Europe Limited has informed Gazprom Export LLC that it does not intend to make any payments under the contract to supply gas to Germany in roubles,” Gazprom said in a statement on its Telegram account.

Gazprom said Shell would lose up to 1.2 billion cubic meters of annual gas supply, a tiny fraction of the 95 billion cubic meters the country consumes each year, according to Germany’s economy ministry.

But Gazprom’s move is still likely to rattle German industry, which is heavily dependent on gas from Moscow. The country has already managed to reduce Russia’s share of its gas imports to 35% from 55% before the start of the war.

A German government spokesperson told CNN Business that they are “monitoring the situation very closely.”

“Security of supply is guaranteed,” added the spokesperson.

Gazprom’s announcement comes just a day after announcing it would cut off gas supplies to Danish energy company Ørsted and Dutch gas trading company GasTerra, and weeks after shutting off taps in Poland, from Bulgaria and Finland.

In March, Russian President Vladimir Putin threatened to cut off gas supplies to “hostile” countries that refused to pay in rubles, rather than the euros or dollars indicated in the contracts.

Since then, Gazprom has offered a solution to its customers. Buyers could make payments in euros or dollars to an account with Russian bank Gazprom, which would then convert the funds into rubles and transfer them to a second account from which payment to Russia would be made.

But many European companies, including Shell Energy, have refused to comply.

“Shell has not accepted the new payment terms set by Gazprom,” a Shell spokesperson told CNN Business on Tuesday. “We will work to continue to supply our customers in Europe through our diversified gas supply portfolio.”

Dutch company GasTerra also said in a statement on Monday that it would not comply with Gazprom’s “unilateral payment demands”.

Henning Gloystein, director of energy, climate and resources at Eurasia Group, told CNN Business that the latest shutdown does not represent a “major loss of revenue” for Gazprom, given that exports to Shell Germany accounted for less. 1% of Russia’s total exports to the European Union last year.

“In contrast, European energy companies that are much more dependent on Russian supply … have largely turned to Gazprom’s new payment mechanism to protect their operations,” he added.

Inke Kappele, Anna Stewart and Robert North contributed reporting.

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