Joanna Plucinska & Marek Strzelecki

WARSAW (Reuters). -Russian energy giant Gazprom told Poland (MCX) and Bulgaria they will stop gas supplies starting Wednesday. It is a key escalation to Russia’s larger row with Western countries over the invasion of Ukraine.

Since Moscow began what it called a military operation against Ukraine on February 24, 2002, the main European supplier would cut off their gas supply to Poland and Bulgaria. Also, the move to shut off gas supplies was made in light of sanctions placed by Warsaw on Russian citizens and businesses.

Russian President Vladimir Putin requested that all countries considered “unfriendly” agree to a plan that allowed them to open Gazprombank Accounts and pay Russian gas imports in dollars or euros. The money would then be converted into Russian rubles.

The European Commission stated last week that EU companies might be able work around Russia’s request to get gas payments in rubles without violating sanctions. If they pay in dollars or euros, which then convert into Russian currency, it would allow them to avoid paying in Russian dollars.

Poland has been a strong political opponent to Moscow. Polish gas company PGNiG (whose Russian gas agreement expires in the middle of the year) has stated that it won’t comply with the new arrangement of payments and will not renew the contract.

Gazprom also declined to extend the gas transit contract it had with Russia in 2020. The Russian gas provider has had to bid on pipeline capacity using the Yamal Europe pipe from Belarus to Poland since then.

Gazprom supplies Poland with 10.2 billion cubic metres (bcm), which covers approximately 50% of its national gas consumption.

Data from European Union gas transmission operator networks showed earlier that gas flows through the Yamal Europe route were halted. However, they resumed Tuesday.

According to Poland’s climate ministry, energy resources are safe. They also stated that Poland does not need to tap into its gas reserves. Furthermore, they said that the gas supply to Poland would not be reduced.

The energy ministry also stated that Gazprom had informed Bulgargaz, a Bulgarian state-owned gas company, it would stop gas supply from Wednesday. The contract for Bulgaria expires at the end the year. Gazprom supplies more than 90% of Bulgaria’s annual gas imports, at 3 billion cubic meters per year.

Tom Marzec Manser is the head of data analytics for gas at ICIS. He said, “This seismic warning shot from Russia.”

“Poland had an antiRussia and antiGazprom position for some years. This is not the case with Bulgaria. So to have Bulgaria cut off from NATO is quite a development,” he said.

ALTERNATIVES

Poland claimed it is able to source gas from Germany via two links, one with Lithuania via the Yamal Pipeline and the other with Germany via an interconnector. The Czech Republic can connect for as much as 1.5 bcm.

A link to Slovakia could allow for another 5-6 bcm shipment. This link will be open later in the year.

PGNiG is also able to import 6 bcm annually via its LNG terminal at Swinoujscie, on the Baltic Sea. It produces over 3 bcm gas annually locally in Poland. A pipeline that allows up to 10 billion cubic meters of gas per annum to flow annually between Poland and Norway will be open in October.

According to government officials, Poland’s gas stock of 3.5 Bcm was 76% full. It will not need to reduce supplies to its customers in order to deal with Gazprom cutbacks.

Bulgaria claimed that they have taken measures to secure alternative gas supplies and that no restriction on gas consumption is required at the moment.

Jefferies Investment Bank analysts stated that this cut-off warn increases the likelihood of premature terminations of European contracts due expire before the year ends. It amounts to approximately 12 billion Canadian dollars per year.

A few Russian gas buyers have indicated that they would not be able to buy future supplies of Russian gas under the Moscow scheme. Uniper is Germany’s biggest importer and has stated it will.

Germany’s network regulator claimed it was closely monitoring Russia’s gas deliveries after the threat of Poland supplies and that Germany is currently supplied.

PGNiG stated Tuesday that it will take measures to restore gas flow according to Yamal Contract and added that any stoppage of supply was a violation of Yamal Contract. It also said that the company has the right of pursuing damages for breach of contract.

Poland had earlier announced Tuesday that it would sanction 50 Russian oligarchs or companies under the law that allowed their assets and wealth to be frozen. Separate from the sanctions jointly imposed by EU nations, this law will apply to Russian oligarchs and companies.

The Dutch gas market was the European benchmark for trading on Tuesday, according to traders. At 98.20 euro/MWh, the front-month Dutch contract for gas settled 5.4% higher.