Gazprom, known as Gazprom, has told European customers that it cannot guarantee gas supplies due to “extraordinary” circumstances, according to a letter seen by Reuters; Case up the ante.
The Russian state-owned gas monopoly said in a July 14 letter that it would retroactively declare force majeure on supplies from June 14. The news comes as Nord Stream 1, a key pipeline that transports Russian natural gas to Germany and beyond, is undergoing 10 days of annual maintenance, which is set to end on Thursday.
The letter fuels concerns in Europe that Moscow may not restart pipelines after maintenance ends in retaliation for sanctions imposed on Russia over the war in Ukraine, exacerbating the energy crisis and potentially tipping the region into recession.
“Force Majeure” clauses are standard clauses in commercial contracts and are an extreme case of releasing a party’s legal obligations. The statement does not necessarily mean that Gazprom will stop deliveries, but that it is not liable if it fails to meet the terms of the contract.
Gazprom did not respond to a request for comment, according to Reuters.
Russian gas supplies through major pipelines, including the Nord Stream 1 pipeline through Ukraine and Belarus and the Baltic Sea, have been declining for months.
A trade source, speaking on condition of anonymity due to the sensitivity of the issue, said the force majeure involved the supply through Nord Stream 1.
“This sounds like the first hint that gas supply through ‘Nord Stream 1’ may not resume after the 10-day maintenance ends,” says Hans van Klee, senior energy economist at ABN AMRO husband said.
“Declaring force majeure on the basis of ‘extraordinary’ circumstances, whether these issues are technical or political, could mean the next stage in the escalation between Russia and Europe and Germany,” he added.
Uniper, Germany’s largest importer of Russian gas, was one of the customers that said it had received the letter and said it had formally dismissed the request as unreasonable.
Germany’s largest electricity producer and another Russian gas importer, Rheinland Group, also said it had received a force majeure notice.
“Please understand that we cannot comment on its details or our legal opinion,” the company said.
turbo lag
Gazprom cut the production capacity of Nord Stream 1 to 40% on June 14. In a letter to buyers, the company said the date was the start of the force majeure.
Gazprom blamed sanctions for the production cuts, citing equipment supplier Siemens Energy’s delay in the return of a turbine repaired in Canada.
Canada sent the pipeline turbine to Germany on July 17 after repairs were completed, Kommersant newspaper reported on Monday, citing people familiar with the matter.
If there are no problems with logistics and customs, it will take another five to seven days for the turbines to reach Russia, the report said. Germany’s economy ministry said on Monday it could not provide details on the turbine’s dynamics.
But a spokesman for the ministry said it was a replacement part and was only intended to be used from September, meaning its absence could not be the real reason for the drop in gas flow before the repairs.
However, Austrian oil and gas group OMV said on Monday that it expects Russian gas transmission via the Nord Stream 1 pipeline to resume as planned after it was halted.
“Gazprom’s motives are uncertain, but the announcement will not have a material impact on the current situation,” said Luo Zongqiang, a natural gas analyst at consultancy Rystad Energy.
The European Union has imposed sanctions on Moscow with a goal of ending the use of Russia’s fossil fuels by 2027, but wants to maintain supplies while looking for alternative energy sources.
“Russia continues to use natural gas as a political and economic weapon,” said White House spokeswoman Karina Jean-Pierre. She added that a Biden administration would continue efforts to reduce Europe’s reliance on Russian fossil fuels. “Russia’s energy coercion is putting pressure on energy markets, raising prices for consumers and threatening global energy security.”
Energy flows are an important source of revenue for Moscow and Gazprom, whose finances have been strained by Western sanctions over Russia’s invasion of Ukraine, which the Kremlin called a “special military operation.”
The federal budget received 6.4 trillion rubles ($114 billion) from oil and gas sales in the first half of this year, according to Russia’s finance ministry. That compares with a full-year plan for 2022 of 9.5 trillion rubles ($170 billion).
The repayment grace period for Gazprom’s two international bonds expires on July 19, and if foreign creditors remain unpaid by then, the company will technically default.