Gazprom Demands Rubles For LNG

Gazprom is proposing to extend the rubles-for-gas scheme to liquified natural gas (LNG), a senior executive said on Monday, days after Russia moved to take full control over the Sakhalin-2 LNG project.

The proposal for demanding payments in rubles for LNG came from Kiril Polous, who is in charge of Gazprom’s long-term development programs, during a parliament energy committee meeting, Russian news agency Interfax reported today.

Last week, a decree from Russian President Vladimir Putin said that a newly set up state Russian company would take over the rights and obligations of Sakhalin Energy Investment Co., the joint venture running the Sakhalin-2 oil and gas project. This could mean a forced exit from the project for Shell and Japan’s Mitsui and Mitsubishi, which are minority shareholders in Sakhalin Energy Investment Co. Shell already said it would leave the project a few months ago and has since then been looking for buyers for its stake in Sakhalin-2.

According to some analysts, the exit of the Western and Asian partners will eventually lead to tighter LNG supply due to the lack of expertise and parts. At the same time, selling the gas would become harder because of the state’s control of the project, Saul Kavonic from Credit Suisse told Reuters.

Russia already runs the ruble-for-gas payment system for the natural gas it sends to Europe via pipeline. Gazprom has already stopped supplying gas to countries and companies refusing to bow to the rubles demand—Poland, Bulgaria, Finland, as well as customers in the Netherlands, Denmark, and Germany.

Many European companies have set up accounts in rubles at Gazprombank to comply with Putin’s demand. Nevertheless, Gazprom slashed pipeline supply to Germany and Italy in the middle of June, claiming “technical reasons” and saying Western sanctions prevent a gas turbine being repaired in Canada from returning to Russia in time. Italy’s Prime Minister Mario Draghi dismissed this explanation, describing the Russian reasons for the reduced flows as “lies.”

With low supply from Russia and Nord Stream up for a two-week maintenance this month, Europe scrambles to fill gas storage in time for the winter.

By Tsvetana Paraskova for Oilprice.com

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