MOSCOW (AFP/Bloomberg) -- Russia’s energy giant Gazprom said Tuesday that China will start paying for Russian gas in rubles and yuan instead of U.S. dollars, as Moscow seeks closer ties with Beijing in the wake of Western sanctions over Ukraine.
“A transition was made to making payments for Russian gas supplies to China in the national currencies of the countries -- the ruble and yuan,” Gazprom said in a statement.
“The new payment mechanism is a mutually beneficial, timely, reliable and practical solution,” Gazprom CEO Alexei Miller said as quoted in the statement following a video conference meeting with the head of China’s oil group CNPC, Dai Houliang.
Miller added that it will “simplify calculations” and “become an excellent example for other companies”.
Miller informed his Chinese counterpart of the “status of work on the project for gas supplies via ‘the eastern route’ -- the ‘Power of Siberia’ gas pipeline” which connects the Russian and Chinese gas networks, Gazprom added.
The energy giant said gas from the under-developed Kovykta field will start flowing through Power of Siberia “before the end of the year”, allowing for the “increase (in) the volume of gas deliveries to China in 2023”.
Following the imposition of economic sanctions over the Kremlin’s offensive in Ukraine, Russia has reduced or halted supplies to different European nations, causing energy prices to soar.
It has also sought to bolster ties with allies in Asia -- especially China -- and boost natural gas deliveries to markets outside Europe.
Europe’s energy crisis is deepening, forcing governments to spend billions to protect businesses and consumers from soaring bills as the region slides towards recession.
$2 Trillion Surge in Europe Energy Bills
Energy bills for European households will surge by 2 trillion euros ($2 trillion) at their peak early next year, underscoring the need for government intervention, according to Goldman Sachs Group Inc. utilities analysts.
At their height, energy bills will represent about 15% of Europe’s gross domestic product, the analysts, led by Alberto Gandolfi and Mafalda Pombeiro, wrote in a note dated Sunday.
“In our view, the market continues to underestimate the depth, the breadth and the structural repercussions of the crisis,” they wrote. “We believe these will be even deeper than the 1970s oil crisis.”
Stock investors are too pessimistic about the effect of regulatory efforts, Goldman said. Some of the steps being considered -- including price caps and a so-called tariff deficit -- could ease the overhang on stock prices by smoothing the increase in tariffs, limiting the near-term drop in industrial production, and largely defusing regulatory risk, the analysts wrote.
The increase in energy bills has prompted a rush by governments to ease cost pressures on households and businesses. EU energy ministers will meet Friday to discuss measures including natural gas price caps and suspension of power derivatives trading. France and Germany support windfall taxes on energy profits.
The introduction of price caps in power generation could save the bloc around 650 billion euros in power bills and offer consumers and markets some relief while allowing governments to forgo a windfall-profits tax, the Goldman analysts said.