Russia’s Gazprom tells European buyers gas supplies are out of its control

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Russia’s Gazprom has told customers in Europe it cannot guarantee gas supplies due to “extraordinary” circumstances, a letter from Reuters reveals, and has upped the ante in an economic battle with the West over Moscow’s invasion of Ukraine.

The Russian state gas monopoly said in a letter dated July 14 that it is retrospectively declaring force majeure for supplies from June 14 onwards. The news comes as Nord Stream 1, the main pipeline delivering Russian gas to Germany and beyond, goes through 10 days a year of maintenance work due to be completed on Thursday.

The letter fueled fears in Europe that Moscow might not restart the pipeline at the end of the maintenance period in retaliation for sanctions against Russia over the war in Ukraine, exacerbating an energy crisis that could plunge the region into recession.

Force majeure, known as the “force majeure” clause, is common in business contracts and defines extreme circumstances that relieve a party of its legal obligations. The statement does not necessarily mean that Gazprom will stop deliveries, but that it should not be held liable if it does not comply with the terms of the contract.

Gazprom did not respond to a request for comment.

In recent months, Russian gas supplies have been declining via the main routes, including via Ukraine and Belarus, as well as via the Nord Stream 1 pipeline under the Baltic Sea.

A trade source, who asked not to be identified due to the sensitivity of the issue, said the force majeure affected supplies via Nord Stream 1.

“This sounds like a first indication that gas supplies via NS1 may not resume after the 10-day maintenance period is over,” says Hans van Cleef, Senior Energy Economist at ABN Amro.

“Depending on what ‘extraordinary’ circumstances have in mind to explain the force majeure and whether these issues are technical or more political in nature, this could mean the next step in the escalation between Russia and Europe/Germany,” he added added.

Uniper, Germany’s largest importer of Russian gas, was among the customers who said they received a letter formally rejecting the claim as unjustified.

RWE, Germany’s largest electricity producer and another importer of Russian gas, also said it had received a force majeure notice.

“Please understand that we cannot comment on the details or our legal opinion,” the company said.

Gazprom reduced Nord Stream 1’s capacity to 40 percent on June 14, the date Gazprom said in the letter to buyers would be the start of force majeure.

Gazprom blamed sanctions for this reduction, citing the delay in returning a gas turbine from maintenance in Canada by equipment supplier Siemens Energy.

Canada sent the turbine for the pipeline to Germany by plane on July 17 after the repair work was completed, the newspaper Kommersant reported on Monday, citing people familiar with the situation.

According to the report, it will take another five to seven days for the turbine to reach Russia, provided there are no problems with logistics and customs. The Federal Ministry of Economics said on Monday that it could not provide any precise information on the whereabouts of the turbine.

However, a ministry spokesman said it was a spare that was not due to be used until September, meaning its absence cannot be the real reason for the drop in gas flow ahead of the maintenance.

However, Austrian oil and gas group OMV said on Monday it expects gas supplies from Russia through the Nord Stream 1 pipeline to resume as planned after the outage.

“Gazprom’s motivations are uncertain, but the statement will not have a significant impact on the current landscape,” said Zongqiang Luo, a gas analyst at consultancy Rystad Energy.

The European Union, which has imposed sanctions on Moscow, wants to phase out the use of Russian fossil fuels by 2027 but wants supplies to continue for now while it develops alternative sources.

“Russia continues to use natural gas as a political and economic weapon,” White House spokeswoman Karine Jean-Pierre said, adding that the Biden administration continues to work to reduce Europe’s dependence on Russian fossil fuels.

“Russia’s energy compulsion has squeezed energy markets, raising consumer prices and threatening global energy security.”

For Moscow and Gazprom, the energy flows are a vital source of income as Western sanctions over Russia’s invasion of Ukraine, which the Kremlin describes as a “special military operation,” have strained Russian finances.

According to the Ministry of Finance of Russia, the federal budget received 6.4 trillion rubles ($114.29 billion) from oil and gas sales in the first half of the year. This compares with the planned 9.5 trillion rubles for the whole of 2022.

The grace period for payments on two of Gazprom’s international bonds expires on July 19, and if foreign creditors are not paid by then, the company will technically default.

https://www.independent.ie/business/world/russias-gazprom-tells-european-buyers-gas-supply-halt-beyond-its-control-41850444.html Russia’s Gazprom tells European buyers gas supplies are out of its control

Fry Electronics Team

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