Russia to halt gas supplies to Finland's Gasum May 21 at 07:00 local time

Finland's Gasum said May 20 its Russian gas imports would be halted on May 21 at 07:00 local time after it refused to comply with new payment terms demanded by Gazprom Export.

In a statement, Gasum said it would supply its customers with gas imported via the Balticconnector with Estonia instead.

"On the afternoon of May 20, Gazprom Export informed Gasum that gas supplies to Finland under Gasum's supply contract will be cut on Saturday, May 21, at 07:00," it said.

"Starting from tomorrow, during the upcoming summer season, Gasum will supply gas to its customers from other sources through the Balticconnector pipeline," it said.

Gasum had warned earlier this week that a shutdown was likely, and European gas prices were unmoved by the cut-off announcement.

TTF month-ahead prices were still trading at around Eur90/MWh following the news, unchanged on the day.

Gasum has a long-term import contract with Gazprom Export that was due to run until 2031. Under the contract, payments were made in euros.

"It is highly regrettable that gas supplies under our supply contract will now be halted," Gasum CEO Mika Wiljanen said.

"However, we have been carefully preparing for this situation and provided that there will be no disruptions in the gas transmission network, we will be able to supply all our customers with gas in the coming months."

Gazprom position

Russian President Vladimir Putin signed a new decree March 31 requiring EU buyers to pay in rubles for Russian gas via a new currency conversion mechanism or risk having supplies suspended.

Gazprom -- which sold some 1.6 Bcm of gas in Finland in 2020, according to its latest full-year data -- sent its European counterparties a notice regarding the terms of the new payment scheme on April 1.

In a statement later May 20, Gazprom Export confirmed it had notified Gasum that supplies would be suspended from May 21 and until payment was made "in accordance with the procedure established by the Decree."

On May 17, Gasum said it did not accept Gazprom Export's requirement to switch to ruble payments and would not make payments in rubles or under Gazprom Export's proposed payment arrangement.

Gasum has also said it intends to take Gazprom Export to arbitration over the changed payment terms as well as other disputes over the parties' long-term contract.

Gazprom Export said May 20 that it would "defend its interests in arbitration proceedings by available means."

Nothing 'for free'

Moscow has insisted on the new payment system given EU sanctions against Russia's Central Bank, with Putin saying March 31 that the sanctions had already resulted in Europe essentially receiving some Russian gas for free.

"What is happening, and has already happened, is that we supplied European consumers with our resources, in this case, gas, they received it, and paid us in euros, which they themselves then froze," Putin said on March 31.

Asked about the move to halt supplies to Gasum, Kremlin spokesperson Dmitry Peskov said May 20 that Moscow did not have information on all of Gazprom's contracts.

"But obviously nobody will supply anything to anyone for free," Peskov was quoted as saying by the Prime news agency.

A refusal by Bulgaria and Poland to comply with the new ruble-based payment decree saw both countries cut off from Russian gas in late April.

The move triggered new concerns on the European gas market over Russian supply reliability, with prices still at sustained highs.

The TTF month-ahead price reached a record of Eur212.15/MWh on March 8, according to Platts assessments by S&P Global Commodity Insights, and was last assessed May 19 at Eur89.60/MWh, still almost 265% higher year on year.

Finland has historically been almost entirely dependent on gas imports from Russia, but since 2020 has been linked to Estonia via the Balticconnector pipeline.

This means Finland can access regasified LNG entering Lithuania at Klaipeda as well as gas stored in Latvia's Incukalns facility -- the only seasonal gas storage site in the Baltic region.

Spot gas prices in the Baltic region have been trading at a premium to European gas benchmarks in recent months.

The Baltic-Finnish Gas Spot Index -- which reflects the prices of concluded transactions on the GET Baltic gas exchange -- averaged Eur109.95/MWh in April.

The price represented a premium to the benchmark TTF hub where the day-ahead averaged Eur98.57/MWh in April, according to Platts assessments.