Finland loses main gas supply from Russia

Refusal of payment in rubles has consequences

“The new liquefied natural gas vessel is a significant step in improving security of energy supply in Finland.” Annika Saarikko

LONDON: Russia has cut Finland off from its natural gas supplies as relations between the two neighbours sour over the Nordic nation’s decision to join defence alliance the North Atlantic Treaty Organization (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 has agreed on renting a floating liquefied natural gas (LNG) 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 overemphasised now.”

Although it’s a relationship dating back five decades, Finland is a relatively small client for Gazprom. Exports to Russia’s western neighbour 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 Nato 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.