Russian gas giant Gazprom has informed its clients in Europe by letter that it cannot guarantee gas supplies due to “extraordinary” conditions, a step that might indicate the company plans to keep supplies limited to strengthen Russia’s control over the region’s energy.
The letter dated July 14 announced that it had declared force majeure on supply orders, backdating the declaration to June 14. Force majeure, sometimes referred to as an “act of God” provision, is a common phrase in commercial contracts that specifies exceptional circumstances that release a party from their legal responsibilities.
According to sources familiar with the situation, Gazprom claimed that the legal provision applied to supplies received over the previous month. The company had already reduced shipments to Europe and closed its major pipeline, Nord Stream 1 (NS1), for maintenance.
Jean-Christian Heintz, the founder of advisory firm Wideangle LNG and a former trader, said, “This move may sound quite odd because first of all, a force majeure (FM) event declared by a seller is supposed to be beyond the seller’s control, which is arguable given the level of weaponization of the gas since the start of the conflict. And secondly, the FM should be addressed by mitigation efforts, which are not too obvious at this stage.”
In response to sanctions placed on Russia because of the war in Ukraine, Europe is concerned that Moscow may decide to leave the pipeline dormant, escalating an energy crisis that might push the region into a recession.
Since one of the two primary entrance crossings on the border with Russia was closed due to the war, flows through Ukraine have also decreased.
Gazprom reduced the pipeline’s capacity to 40% on June 14, citing a turbine that was being fixed in Canada by equipment provider Siemens Energy as the reason for the delay.
After repairs were finished, Canada shipped the Nord Stream gas pipeline turbine to Germany by plane on July 17, the Kommersant daily said on Monday.
Assuming there are no issues with logistics or customs, it will take another five to seven days for the turbine to arrive in Russia.
On Monday, the German economics ministry stated that it could not disclose specifics regarding the turbine’s location.
However, a ministry spokeswoman stated that as it was a replacement item that was only intended to be utilized starting in September, its absence could not be the cause of the decline in gas flows before the repair.
“This sounds like a first hint that the gas supplies via Nord Stream 1 will possibly not resume after the 10-day maintenance has ended,” said ABN Amro senior energy economist Hans van Cleef.
“Depending on what ‘extraordinary’ circumstances [they] 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 energy flows are a crucial source of income for Moscow and Gazprom when Western sanctions against Russia have put pressure on the nation’s finances.
According to the Russian Finance Ministry, the first half of the year brought in 6.4 trillion rubles ($115.3 billion) in oil and gas sales. By contrast, 9.5 trillion Russian rubles were budgeted for all of 2022.
On July 19, the grace period for two of Gazprom’s international bonds will expire. If foreign creditors are not compensated by that date, Gazprom would legally be in default.
America could profit from selling natural gas to Germany but the Biden administration will never allow it.