London (CNN Business)Russia is about to shut off its natural gas supplies to Shell’s German customers.
Gazprom (GZPFY), the Russian state energy giant, said on Tuesday it would suspend natural gas exports to Shell (SHLX) starting Wednesday because the company had failed to make payments in rubles.
“Shell Energy Europe Limited has notified Gazprom Export LLC that it does not intend to make payments under the contract for the supply of gas to Germany in rubles,” Gazprom said in a statement on its Telegram account.
Gazprom said Shell would lose up to 1.2 billion cubic meters worth of annual gas supply — just a tiny fraction of the 95 billion cubic meters the country consumes each year, according to Germany’s economic ministry.
But Gazprom’s move is still likely to rattle German industry, which is heavily reliant on Moscow’s gas. The country has already managed to slash Russia’s share of its gas imports to 35% from 55% before the start of the war.
A spokesperson for the German government told CNN Business that it was “monitoring the situation very closely.”
“Security of supply is guaranteed,” the spokesperson added.
Gazprom’s announcement comes just a day after it said it would halt gas supplies to Danish energy company Ørsted and Dutch gas trading firm GasTerra, and weeks after it turned off the taps to Poland, Bulgaria and Finland.
In March, Russian President Vladimir Putin threatened to cut gas deliveries to “unfriendly” countries that refused to pay in rubles, rather than the euros or dollars stated in contracts.
Since then, Gazprom has offered customers a solution. Buyers could make euro or dollar payments into an account at Russia’s Gazprombank, which would then convert the funds into rubles and transfer them to a second account from which the payment to Russia would be made.
But many European companies, including Shell Energy, have refused to comply.
“Shell has not agreed to new payment terms set out by Gazprom,” a Shell spokesperson told CNN Business on Tuesday. “We will work to continue supplying our customers in Europe through our diverse portfolio of gas supply.”
The Netherlands’ GasTerra similarly said in a Monday statement that it would not comply with Gazprom’s “one-sided payment requirements.”
Henning Gloystein, director of Energy, Climate and Resources at Eurasia Group, told CNN Business that the latest shut off does not represent a “major revenue loss” for Gazprom, given exports to Shell Germany accounted for less than 1% of Russia’s total exports to the European Union last year.
“By contrast, European energy firms that rely much more on Russian supply… have largely switched to Gazprom’s new payment mechanism in order to safeguard their operations,” he added.
— Inke Kappele, Anna Stewart and Robert North contributed reporting.
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