By Vera Eckert, Christoph Steitz and Nina Chestney

FRANKFURT/LONDON – German utilities said Thursday that their country required an early warning system for gas shortages. This was a day after Russia switched contract payments from rubles to roubles. It raises the possibility of a squeeze on supplies and further increases the price.

President Vladimir Putin’s rouble-payment demand to IEA Executive director Fatih Birol, a “security risk,” caused market panic and also questioned Russia’s claim of being a reliable gas source regardless geopolitics.

This demand was made by Putin on Wednesday in response to the United States’ and European Allies uniting on sanctions against Russia following the nation’s incursion into Ukraine last month.

Europe’s energy sector already faces supply issues. After quadrupling in 12 months, the benchmark price of German gas delivery next Year has increased by 8%. [NG/EU] [EL/DE]

Moscow’s supply of Russian gas to Germany has been guaranteed for more than 50 year, including during the Cold War. Gazprom, Russia’s largest gas exporter (MCX:), has over 40 long-term contracts with European counterparts.

On Thursday, however, Germany’s utility association BDEW (which includes Gazprom customers RWE, EnBW’s VNG, and Germany’s gas suppliers EnBW) urged the government for an early warning system to be in place in case Russia cuts supplies.

Kerstin Anderson, president of BDEW said that there are “concrete and serious indicators” that the gas supply is under threat. He cited Russian demand for “unfriendly countries”, including Germany to pay in roubles for gas.

BDEW stated that the Bundesnetzagentur is the nation’s energy regulator and must set standards for which sectors and industries will continue to be supplied, while households are covered by existing regulations.

Robert Habeck, German Economy Minister said that there wasn’t need to have an early warning system and that supplies were guaranteed. However, he added that the situation must be closely monitored.

DILEMMA

Russia’s demand is still needed to be supported with a concrete mechanism. This presents European customers with an option: refuse to pay in Russian roubles to avoid no gas; or, comply to get higher prices. Contracts are being renegotiated, while more favorable long-term agreements are scrapped.

Russia isn’t (yet?) turning off the gas faucet. Analysts at Commerzbank (DE) warned that it could increase the price we pay.

When asked if the United States would let European countries that can’t manage without Russian energy to pay in roubles, a White House official replied that Washington is in consultation with its allies.

Ursula von der Leyen, President of the European Commission, agreed and stated that this was an attempt by Russia to bypass EU sanctions. We will not permit our sanctions to be circumvented. She said that energy cannot be used to blackmail people anymore.

Japan is Asia’s largest importer of Russian LNG.

Tokyo Gas and Osaka Gas were the largest suppliers of local gas in the country.

South Korea, Asia’s third-largest exporter of Russian LNG is optimistic that they will be able continue their imports. South Korea’s Financial Services Commission said it would facilitate trade. (Graphic: Global gas prices – https://fingfx.thomsonreuters.com/gfx/ce/lbvgnmgyzpq/Pasted%20image%201648088570088.png)

Pawel Majewski of PGNiG was the CEO. He stated in Poland that because the company has a contract to Gazprom through the end of the year, it could not switch to Russian rubles.

He said, “Our contract partners can’t change the payment methods stipulated in the agreement.”

Orsted (OTC), Denmark’s biggest energy firm, stated that it was not certain what the impact would be.

RWE and Uniper (Germany’s largest Gazprom customer) did not respond to requests for comment Thursday. Naturgy Spain, which is a client of Yamal LNG also refused comment.

According to a leading economic advisor in Italy, Wednesday’s statement stated that it would pay the same amount of euros as before.

Russian gas is still flowing for now.

The Nord Stream 1 pipeline, which crosses the Baltic Sea to deliver gas westwards to Europe, saw a slight increase in deliveries on Thursday. Meanwhile the Yamal Europe pipeline flows east from Germany into Poland.