By Kati Pohjanpalo (Bloomberg) –Russia has cut Finland off from its natural gas supplies as relations between the two neighbors sour over the Nordic nation’s decision to join defense alliance NATO.
Finland is the third European country to lose gas from Russia after refusing to pay for the fuel in rubles. Flows on a main pipeline from the region’s top supplier were halted in the early hours of Saturday, according to a filing by Finnish importer Gasum Oy. Poland and Bulgaria had their taps turned off last month for the same reason.
“Most in the market expect Finland to be the only buyer to have deliveries cut at this time,” but “the risk remains that buyers elsewhere could also suffer the same fate,” said Tom Marzec-Manser, head of gas analytics at ICIS in London, citing a recent poll of traders by the company.
The lost supplies will likely have a limited impact on the Nordic nation’s economy, with the fuel accounting for just about 5% of the energy mix. It’s mainly used by factories rather than for heating like in many other European nations. The government has pushed for a fast exit from Russian fossil fuels.
“Gazprom Export informed Gasum that natural gas supplies to Finland under Gasum’s supply contract will be cut on Saturday,” the Finnish company said.
Gazprom Export, the export arm of gas giant Gazprom, said it hadn’t received payment for April supplies by close of business on May 20 — the payment deadline, according to a statement. Gas flows will be halted “starting from May 21 and up until the payment is made in line with the order” given by President Vladimir Putin on March 31, it said.
In the meantime, supplies continue to flow into Finland via the Balticconnector pipeline from Estonia, but its capacity may not be enough to meet demand. That’s after a number of companies have already switched to other fuels or secured alternative supplies. For the coming winter, the government on Friday agreed on renting a floating liquefied natural gas terminal together with Estonia.
“The new LNG vessel is a significant step in improving security of energy supply in Finland,” Finance Minister Annika Saarikko told reporters on Friday. “This will make it possible to break away from Russian energy. The importance of the project cannot be overemphasized now.”
Although it’s a relationship dating back five decades, Finland is a relatively small client for Gazprom. Exports to Russia’s western neighbor accounted for about 1% of the company’s combined sales to Europe and Turkey in the first half of last year.
The halt also comes a week after electricity sales into Finland from Russia ended, coinciding with a decision to seek entry into the North Atlantic Treaty Organization together with Sweden. Russia has said an application to join will have consequences, without providing details.
European benchmark gas futures fell on Friday, and were down more than 9% this week. Prices have dropped after spiking following Russia’s invasion of Ukraine, but remain at very high levels.
European nations are split over how to handle Moscow’s demand from late March that all payments for the fuel should be made in rubles, and utilities have responded to the challenge differently. Russia said on Thursday that about half of Gazprom PJSC’s foreign clients have complied with the request and opened ruble accounts, without naming any companies.
The pipeline from Russia recently accounted for about 66% to 75% of Finland’s supplies. Russian gas exports to Finland have been declining since 2018, when shipments were about 2.6 billion cubic meters. They had fallen by 39% of that in 202O.
The supply cut by Russia is slated to kick off market steering measures by the grid operator, meaning it may ration flows to users. Finland also has reserve fuel in storage, which can be fed into the network if pressure drops too low. Reduced supply is likely to further raise the price of the fuel.
The situation is “under control,” the Finnish Economy Ministry said, adding that “the direct gas needs of household customers can be covered in all situations, as can the gas required by the essential services,” according to an emailed statement.
The biggest users are Neste Oyj — which uses the fuel to make hydrogen needed for its oil-refining operations — forestry companies and steel mills.
Gasum said it will still be able to supply natural gas to its customers from other sources through the Balticconnector pipeline, while its gas filling stations will continue in normal operation.
–With assistance from Elena Mazneva and Leo Laikola.
© 2022 Bloomberg L.P.
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