Rystad: Currency questions arise amid Russian sanctions

Gas markets are stuck between western sanctions and Russian demands for payments in Rubles. Meanwhile, Saudi Arabia, China, Iran, and India have started to look at alternative currencies with the Yuan and Rupee, Rystad Energy said in a research note.

The market continues to struggle to comprehend the implications of the Russian president’s statement on payments in Rubles, said Vinicius Romano, senior analyst at Rystad. TTF prices experienced continued volatility following the statement.

“Proposing that Russian gas should be paid in Rubles, Putin has raised issues that go beyond the energy sector. With this he attempts to challenge the dominance of the Euro and US Dollar currencies. Prior to the Russian statement, Saudi Arabia was already speeding-up negotiations with China to accept oil payments in Yuan, while Iran is discussing the switch to Rupees with India. Nevertheless, it is unlikely that alternative currencies will be implemented in existing contracts. Requiring payments in Rubles will force Western companies to negotiate with sanctioned banks,” Romano said.

“This may factor into the Kremlin’s thinking as this will create an impetus to remove part of the sanctions or make them milder. The market is keenly looking for direction from the meeting between the European Council and US President Joe Biden, where a phase-out plan to reduce EU energy dependence on Russia, EU energy security, and energy affordability will be discussed,” he said.

“Europe will have to choose between reaching its 80% storage target by Nov. 1 this year or expressively cutting Russian imports in 2022. Achieving both would be a challenging goal to reach this year. Some bullish sentiment is also being drawn from the prospect of the US imposing further sanctions on Russia and EU still debating an oil embargo on Russia,” Romano continued.

Notwithstanding geopolitical developments, the daily fundamentals should have been bearish, as Russian flows remains stable and Norwegian flows increased.

The EU’s last proposal to fill storage until Nov. 1 was revised to 80% capacity, from 90% earlier for 2022, which works out to be a slight injection demand relief of about 10 bcm across April-October.

“Expressive numbers of LNG transactions from Asian buyers are sustaining prices between $33-35/MMbtu, but these may also be posed for upside as Tohoku electric has set a precedent expressly banning Russian origin cargoes in its tender, effectively raising competition for non-Russian cargoes,” said Romano.

For US markets, oil storages reached a record-low levels over the past 2 decades. Henry Hub reached above $5/MMbtu due to a colder weather forecast and sustained record-high LNG exports.

Germany has taken another step in its medium-term portfolio transition, as Shell commits to use the yet-to-be sanctioned Brunsbuettel terminal, implying the country is making rapid progress on its quest to replace Russian gas. German LNG Terminal GmbH and Shell signed memorandum of understanding on the import of LNG through the terminal. Shell has agreed to make a long-term booking of a substantial part of the terminal’s capacity for the import of LNG, the companies said Mar. 23.