Russia’s Gazprom has told customers in Europe it cannot guarantee gas supplies because of “extraordinary” circumstances, according to a letter seen by Reuters, upping the ante in an economic tit-for-tat with the west over Moscow’s invasion of Ukraine.
Dated 14 July, the letter from the Russian state gas monopoly said it was declaring force majeure on supplies, starting from 14 June.
Known as an “act of God” clause, force majeure clause is standard in business contracts and spells out extreme circumstances that excuse a party from their legal obligations.
Gazprom had no immediate comment on the move.
Uniper, Germany’s biggest importer of Russian gas, was among the customers who said it had received a letter, and that it had formally rejected the claim as unjustified. It did not share the letter, but a trading source, asking not to be identified because of the sensitivity of the issue, said the force majeure concerned supplies through the Nord Stream 1 (NS1) pipeline, a major supply route to Germany and beyond.
Flows through the pipeline are at zero as the link undergoes annual maintenance that began on 11 July and is meant to conclude on Thursday.
Europe fears Moscow could keep the pipeline mothballed in retaliation for sanctions imposed on Russia over the war in Ukraine, heightening an energy crisis that risks tipping the region in recession.
Gazprom had already cut the pipeline’s capacity to 40% on 14 June, citing the delay of a turbine under maintenance work in Canada by the equipment supplier Siemens Energy.
Canada sent the turbine for the Nord Stream gas pipeline to Germany by plane on Sunday after the repair work had been completed, Kommersant newspaper reported on Monday, citing people familiar with the situation.
Provided there are no problems with logistics and customs, it will take another five to seven days for the turbine to reach Russia, the report added.
Germany’s economy ministry said on Monday it could not provide details of the turbine’s whereabouts. But a spokesperson said it was a replacement part that was meant to be used only from September, meaning its absence could not be the real reason for the fall-off in gas flows before the annual maintenance work on the pipeline.
“This sounds like a first hint that the gas supplies via NS1 will possibly not resume after the 10-day maintenance has ended,” said Hans van Cleef, senior energy economist at the bank ABN Amro.
“Depending on what ‘extraordinary’ circumstances [Gazprom] have in mind in order to declare the force majeure, and whether these issues are technical or more political, it could mean the next step in escalation between Russia and Europe-Germany,” he added.
The Austrian oil and gas group OMV, however, said on Monday it expected gas deliveries from Russia through the pipeline to resume as planned after the stoppage.
Russian gas supplies have been declining via major routes for some months, including those through Ukraine and Belarus as well as through Nord Stream 1 under the Baltic Sea.
The European Union, which has imposed sanctions on Moscow, aims to stop using Russian fossil fuels by 2027 but wants supplies to continue for now as it develops alternative sources.
For Moscow and for Gazprom, the energy flows are a vital revenue stream when western sanctions over Russia’s invasion of Ukraine have strained Russian finances.
According to the Russian finance ministry, the federal budget received 6.4tn roubles (£96bn) from oil and gas sales in the first half of the year. This is comparedwith planned 9.5tn roubles for the whole 2022.
The grace period for payments on two of Gazprom’s international bonds expires on 19 July, and if foreign creditors are not paid by then the company will technically be in default.
July 18, 2022 at 10:24PM Reuters