Russia’s Gazprom has told its customers in Europe that it cannot guarantee gas supplies due to “exceptional” conditions, according to a letter seen by Reuters, raising the stakes in an economic standoff with the West over Moscow’s invasion of Ukraine . Dated July 14, the letter from the Russian state gas monopoly said it had declared force majeure on supplies starting June 14. Known as an “act of God” clause, force majeure is standard in business contracts and describes extreme circumstances that relieve a party of its legal obligations. Gazprom’s GAZP.MM had no immediate comment. Uniper, Germany’s biggest importer of Russian gas, was among the customers that said it had received a letter and that it formally rejected the claim as unfounded. RWE RWEG.DE, Germany’s biggest power producer and another importer of Russian gas, also said it had received a notice of force majeure. “Please understand that we cannot comment on the details or our legal opinion,” the company said. A trading source, who asked not to be named because of the sensitivity of the matter, said the force majeure involved supplies through the Nord Stream 1 pipeline, a major supply route to Germany and beyond. Flows through the pipeline are zero as the link undergoes annual maintenance that began on July 11 and is due to be completed on Thursday. Europe fears Moscow could hold the pipeline in retaliation for sanctions imposed on Russia over the war in Ukraine, intensifying an energy crisis that risks pushing the region into recession.
TURBINE DELAY
As early as June 14, Gazprom had reduced the pipeline’s capacity to 40%, citing the delay of a turbine maintained in Canada by equipment supplier Siemens Energy ENR1n.DE. Canada sent the turbine for the Nord Stream gas pipeline to Germany by plane on July 17 after repair work was completed, Kommersant newspaper reported on Monday, citing people familiar with the situation. As long as there are no problems with logistics and customs, it will take another five to seven days for the turbine to reach Russia, the report said. Germany’s economy ministry said on Monday it could not provide details on the turbine’s location. However, a ministry spokesman said it was a spare only meant to be used from September, meaning its absence could not be the real reason for the drop in gas flows before the maintenance. “This sounds like a first indication that gas supply via NS1 may not resume after the 10-day maintenance ends,” said Hans van Cleef, senior energy economist at ABN Amro. “Depending on what ‘extraordinary’ circumstances they have in mind to declare force majeure and whether these issues are technical or more political, it could mean the next step of escalation between Russia and Europe/Germany,” he added. Austrian oil and gas group OMV OMVV.VI, however, said on Monday it expected natural gas deliveries from Russia via the Nord Stream 1 pipeline to resume as planned after the outage. Russian gas supplies have been flowing through major routes for several months, including 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 end its use of Russian fossil fuels by 2027, but wants supplies to continue for now as it develops alternative sources. For Moscow and Gazprom, the energy flows are a vital revenue stream when Western sanctions over Russia’s invasion of Ukraine, which the Kremlin calls a “special military operation,” have weighed on Russian finances. According to the Russian Finance Ministry, the federal budget received 6.4 trillion rubles ($115.32 billion) from oil and gas sales in the first half of the year. This compares with a 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 be in default. (Reporting by Julia Payne; Additional reporting by Christoph Steitz in Frankfurt, Bozorg Sharafedin in London; Writing by Nina Chestney in London; Editing by David Goodman, Edmund Blair and Barbara Lewis)
