Gazprom cuts gas supply to the Netherlands

The threat to cut off the gas supply, if not paid for in rubles, claims another victim. Russian gas giant Gazprom said it would cut off gas supplies to the Netherlands by Wednesday, in response to Dutch energy trader GasTerra’s refusal to pay in roubles.

Gazprom’s decision was widely expected after Russian President Vladimir Putin announced that all European gas deliveries would have to be paid for in rubles. In a reaction, Dutch GasTerra said it had already sourced its supplies elsewhere. The cancellation of the current contract is scheduled for the period from May 31 to October 1, 2022, involving around 2 billion cubic meters of natural gas, or around 5% of annual Dutch consumption. No details were given by GasTerra where it bought other volumes, but it seems to be gas from Norway or LNG.

Dutch Energy and Climate Minister Rob Jetten said the effects of the Russian decision are almost nil, as there is no threat to crucial physical gas supplies. This means that Dutch consumers will still be able to use natural gas as usual. Yet it looks like the Dutch minister is once again dismissing growing fears of not only increased shortages in the market, but also a further surge in inflation as wholesale gas prices rise dramatically. Dutch consumers will see their bills rise accordingly. According to Dutch law, in times of energy shortages, such as the current natural gas crisis, volume reductions will occur first in several energy-intensive industries, raising prices in a market that is already struggling with supply chain issues.

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The view of the Dutch government and GasTerra that Gazprom’s decision to cut supply does not have a major impact on the Dutch economy is perhaps short-sighted. Russia’s move will further tighten European gas markets, as Dutch importers will now seek alternative sources of supply in an already congested European gas market. At the same time, Gazprom has now shown its willingness to target large-scale gas customers in northwestern Europe as well. GasTerra’s move is significant, as Dutch-Russian gas connections are deep and historically very good strategically. A full showdown with major gas importers appears imminent, and other Western European countries should brace for a possible cut in supply.

The Dutch are now becoming a prime example of Russia’s weaponization of energy. Gazprom’s decision is based on Putin’s strategic considerations, as the Netherlands is a hub for European gas storage and infrastructure.

The Dutch position shows that not all importers are as flexible as German or Austrian importers. GasTerra’s refusal to pay in roubles, even via a possible financial construction at Gazprombank in Luxembourg, shows the Dutch government’s commitment not to give in to Putin’s pressure. Moscow is raising the bar, having already blocked gas deliveries to Poland, Finland and Bulgaria.

As Putin implements his gas-for-rubles program, consumers and industry will have to prepare for much harsher realities. Gas markets are already overheating and LNG volumes available on the spot market are shrinking. EU importers have little alternative if Moscow decides to stop the supply.

By Cyril Widdershoven for Oilprice.com

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