(Bloomberg) -- European countries still buying Russian gas are rushing to find a way to keep paying for supplies after Dec. 20 that won’t violate surprise US sanctions.
Washington last week put sanctions on Gazprombank, which some central European nations use to pay Moscow, raising the risk of a cut-off of gas. The US has been gradually tightening measures to choke off revenue for President Vladimir Putin’s war effort, but up to now Gazprombank had been exempt because of the potential impact it would have on security of supplies for Europe.
While the US hasn’t said why it has decided to impose those particular sanctions now, it’s clear that the tectonic plates of how Europe gets and pays for gas from Russia are moving.Before the sanctions, the gas market had been focused on whether a deal can be hammered out to keep gas flowing west through Ukraine in the new year. The US sanctions in their current form mean is that even if an agreement is found, European countries might not be able to pay and gas flows could stop anyway.
The countries that will be most acutely affected are Slovakia and Hungary, which still rely on Russian gas delivered under a long-term contract with Gazprom PSJC.
Hungary has warned that the US sanctions jeopardize energy security, elevating the risks of an early halt of Russian gas through Ukraine. Slovakia hasn’t formally commented yet but its biggest gas company Slovensky Plynarensky Priemysel AS has been vocal in pushing to find a solution to keep flowing through Ukraine next year.Austria could be impacted too as it still receiving supplies through Slovakia even after the country’s biggest utility OMV AG was cut off from Gazprom’s supply this month after stopping payments following an arbitration award.“It’s a problem for some companies who were using the bank for gas transactions,’’ said Gunvor Group co-founder and chief executive officer Torbjörn Törnqvist.
Another country concerned about the sanctions is Turkey, which delivers Russian gas to Europe through the Turkstream pipeline. The country is in talks with the US about a waiver to allow it to keep using Gazprombank to pay for gas imports.That opens the possibility for Turkey to become an intermediary for European companies to continue paying for gas.
Europe was already bracing for the potential end to flows of Russian gas through Ukraine when a transit deal expires at the end of the year. European gas futures are at the highest for a year as the global supply outlook tightens.
There are ways that European companies can continue buying Russian pipeline gas without violating the sanctions against Gazprombank, according to Fernando Ferreira, a director of the geopolitical risk service at consultancy Rapidan Energy Group.
The US Office of Foreign Assets Control could give Gazprombank a general license authorizing energy-related transactions as a measure of last resort to avoid energy disruptions, Ferreira said. Other major Russian banks, like Sberbank PJSC, Alfa-Bank AO, VTB Bank PJSC and state corporation Vnesheconombank hold such licenses through April 30 next year, according to OFAC.
Another option could involve Gazprom’s clients in Europe paying for gas through the already authorized Russian banks - although Moscow may have to approve changes to payment details in Gazprom’s remaining export contracts.
“One complication is that specifying another payment mechanism can act as a contract reopener, leading to protracted renegotiations over other terms,” Energy Aspects Ltd. analysts wrote in a note last week.
The US could also give limited authorizations to specific Gazprom clients to continue payments via Gazprombank.
“Unlike general licenses, company-specific licenses are not public, enabling Washington to dial back sanctions discreetly,” Rapidan’s Ferreira said. Such waivers have previously been handled out companies operating in Venezuela, for example.
There’s also a possibility that US President-elect Donald Trump could either lift the sanctions or grant a last resort extension out to the end of April after he is inaugurated on Jan. 20 — around a payment date for Gazprom’s clients for supplies in December.
“We cannot predict, but it’s possibly and likely,” Victor Gao, Chairman of the China Energy Security Institute, said in an interview in London this week. Overall the US relationship with Russia “may be revolutionized” after Trump’s return, he said.
The European Commission, the EU’s executive arm is closely monitoring the impact of the sanctions, according to a spokesperson.
Discussions are ongoing with US counterparts and both sides are ready to work together as necessary for more specific mitigation needs before Dec. 20 to limit any potential disruption to imports, according to a spokesperson.
It remains unclear how the restrictions on Gazprombank will impact payments linked to liquefied natural gas exports, which account for a significant chunk of Russia’s revenues selling gas abroad. Russia currently exports the super-chilled fuel mainly from Yamal LNG and Sakhalin-2.
The sanctions exempted transactions related to the Sakhalin-2 to the north of Japan through June 28, 2025. The Japanese government has remained committed to receiving liquefied natural gas from the project, calling it an important project for the country’s energy security.
--With assistance from Elena Mazneva, Zoltan Simon, Slav Okov, Anna Shiryaevskaya, Daniel Hornak and Archie Hunter.
(Updates with CEO comment in eighth paragraph.)
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