Russia is set to cut the natural gas supply for Shell’s German customers.Gazprom ( GZPFY) Gazprom (GZPFY), the Russian state-owned energy company announced on Tuesday that it will cease natural gas sales to Shell ( SHLX) beginning on Wednesday, citing that the company failed to pay in rubles.
“Shell Energy Europe Limited informed Gazprom Export that the company has no plans to pay under the contract to supply natural gas for Germany in rubles.” Gazprom said in a statement posted on the Telegram account.
Gazprom stated that Shell could be losing up to 1.2 billion cubic meters of its annual gas supplywhich is a tiny portion of the 95 billion cubic meters that the country uses each year according the German economic ministry.
However, Gazprom’s announcement is likely to cause a ruckus in German manufacturing that heavily depends on Russia’s gas. It has been able to reduce the amount of gas Russia imports down to 35% from 55% prior to the beginning of the war.
A spokesperson from the German government informed CNN Business that it was “monitoring the situation extremely close.”
“Security in supply can be ensured,” the spokesperson added.
The announcement by Gazprom comes one day after it announced it was going to stop gas supply for Danish energy firm Orsted along with Dutch gas trading company GasTerra in the weeks following it shut off the gas supply that supply Poland, Bulgaria and Finland.
Then, in March Russian Vladimir Putin, the president of Russia in March Vladimir Putin threatened to cut off gas supplies to “unfriendly” nations that refuse to settle in rubles instead of the dollars or euros specified in the contracts.
Since since then, Gazprom has offered customers an option. Customers could pay in dollars or euros to an account in Russia’s Gazprombank that would change the money into rubles before transferring them to another account, from which the transfer to Russia will be made.
However, a lot of European firms such as Shell Energy, have refused to follow through.
“Shell has not signed a contract with Gazprom to new payment terms as laid in the Gazprom agreement. Gazprom,” a Shell spokesperson said to CNN Business on Tuesday. “We are working to continue serving our customers across Europe with our wide range of gas supplies.”
The Netherlands’ GasTerra similarly stated in a statement issued on Monday that it will not be able to comply with Gazprom’s “one-sided payments requirements.”
Henning Gloystein director for Energy, Climate and Resources at Eurasia Group, told CNN Business that the most recent shutdown does not amount to an “major revenues reduction” for Gazprom as Exports from Shell Germany accounted for less than 1percent from Russia’s overall exports to European Union last year.
“By contrary, European oil and gas companies that depend heavily in Russian sources… Have in large part moved to Gazprom’s new payment system to ensure their operations are protected,” he added.
