How Biden plans to wean E.U. from Russian gas amid Putin’s ruble move

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Joseph P Chacko
Joseph P Chacko
Joseph P. Chacko is the publisher of Frontier India. He holds an M.B.A in International Business. Books: Author: Foxtrot to Arihant: The Story of Indian Navy's Submarine Arm; Co Author : Warring Navies - India and Pakistan. *views are Personal

U.S. President Joe Biden announced on 25 March that an agreement had been reached with the E.U. on the supply of liquefied natural gas, and additional quantities will help reduce dependence on Russian imports. In addition, Washington and Brussels will also work to accelerate the transition to renewable energy. 

Additional liquefied natural gas 

The United States has committed to working with international partners and trying to provide an additional 15 billion cubic meters of liquefied natural gas this year. However, not all of this extraordinary volume will come directly from the United States. 

In 2021, the E.U. imported 80 billion cubic meters of liquefied natural gas. It is unclear whether the extra amount means more than that. A senior U.S. administration official said that this agreement could be seen as an attempt to end E.U. imports of 15 billion cubic meters from Russia. 

The European Council will also work with E.U. countries to ensure that they can receive an additional 50 billion cubic meters of liquefied natural gas from the United States by 2030. 

The bloc bought about 22 billion cubic meters of liquefied natural gas from the United States last year. A senior E.U. official said this meant developing infrastructure, including liquefied natural gas terminals and links between E.U. countries. 

Transatlantic partners will also try to reduce greenhouse gas emissions from liquefied natural gas infrastructure by using clean energy to power operations and reduce methane leaks. 

Reducing gas demand

The two sides also agreed to co-operate to speed up the transition to renewable energy and reduce energy demand. 

European Council President Ursula von der Leyen said the E.U. should shut down Russian fossil fuels by 2027. Aided by smart thermostats and heat pumps, saving electricity in homes could cut demand by 15.5 billion cubic meters this year. 

Accelerated wind and solar energy generation can replace 20 billion cubic meters of gas. Along with proposals in the current Green Deal, the E.U. will try to remove at least 155 billion cubic meters, the volume imported from Russia in 2021, with almost two-thirds to be removed within a year, the Commission said. 

The total demand for gas in the E.U. is about 400 billion cubic meters. Liquefied natural gas is already on its way to Europe. The E.U. has already stepped up efforts to provide more liquefied natural gas following talks with supplier countries, which resulted in a record 10 billion cubic meters delivered to more than 120 ships in January. In January 2022, shipments from the United States increased to 4.4 billion cubic meters, which is about twice the normal amount for the month. 

The E.U. executive has also proposed a law requiring the E.U.’s underground gas storage facilities to be 90 per cent full by 1 October each year. Stocks were lower this winter. However, as global liquefied natural gas plants are already operating at full capacity, experts say that most of the additional gas to Europe will come from exports that have been destined for other parts of the world. It is partly because European gas prices have been the highest globally in recent months. However, some deliveries cannot be easily diverted as contractual relationships exist.

Moscow’s demand to pay for gas in Russian currency

Moscow’s demand to pay for gas not in euros and dollars but in rubles was met with indignation in the E.U. 

Germany and Italy have called the requirement to switch to the Russian currency in payments for energy carriers as a violation of contracts.

“There are contracts,” Reuters quoted German Chancellor Olaf Scholz at the E.U. summit in Brussels. “One of the points of these contracts is the currency in which settlements must be made … Most (contracts) say that it must be euros and dollars.”

The statements of German politicians attract especially close attention because it is Germany that is now categorically opposed to the embargo on Russian energy carriers.

Germany is now heading on a rotating basis until the summer, not only the European Union but also the G7. The latest package of European sanctions against Russia, the fifth after the start of the Russian military operation in Ukraine, turned out to be relatively moderate and again did not affect Russian energy carriers, largely thanks to Berlin.

“It is important to understand that in general, this (the requirement to switch payments to rubles) is a violation of contracts,” Italian Prime Minister Mario Draghi supported Scholz in Brussels.

European Commission President Ursula agreed with the leaders of Germany and Italy, saying that Moscow’s demand is an attempt to circumvent E.U. sanctions against Russia.

French President Emmanuel Macron said the procurement and the ability to jointly determine long-term contracts are the best tools to reduce gas prices, so the Commission is tasked with doing so.

 Macron said it is necessary to untie the price of electricity from the price of gas.

“We have given the Commission a mandate to revise electricity prices initially in the short term to install a ceiling. Thanks to the mechanism we have today, prices are rising, consumers are paying dearly, taxpayers are paying dearly. This reform of electricity prices should make it possible to combat this, “he said.

Gazprom, the main exporter of Russian gas, has more than 40 long-term contracts with European buyers. As per Gazprom, about 97% of gas supplies to Europe and other countries as of 27 January were carried out in euros and dollars.

“No one will pay in rubles,” Slovenian Prime Minister Janez Jansa made his forecast.

Not all European countries are so resolutely opposed to settlements in rubles. Bulgaria, for example, is ready to pay for gas from Russia in Russian currency.

Ruble switch will not affect gas revenue – Russia

Russian Finance Minister Anton Siluanov, in an interview with Russia 1 channel, said the transition to gas payments in rubles with countries unfriendly to Russia, in addition to supporting the Russian currency, it will reduce risks for commodity flows. Siluanov explained that switching to ruble payments for gas would not affect oil and gas revenues. 

He believed the Western partners will “adapt” to these changes. 

The head of the Ministry of Finance also said that the decision to settle in rubles positively affected its exchange rate against other currencies. “The ruble has strengthened, confidence in the ruble has strengthened, since the ruble is now backed by, among other things, our export goods,” Anton Siluanov said.

The minister added that western partners will soon realize that the ruble is no less reliable currency than other reserve currencies.


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