Russia’s Gazprom has informed its customers in Europe that it is unable to provide gas due to “extraordinary” circumstances as per an email obtained by Reuters increasing the stakes in a trade-off between the economy and Western nations over Russia’s incursion into Ukraine.
The Russian state gas monopoly , the state, said in a statement dated the 14th of July that it would be retrospectively declaring force majeure for supplies beginning on the 14th of June. The announcement is coming in the midst of Nord Stream 1, the major pipeline that supplies Russian gaz to Germany as well as the rest of Europe, has been currently undergoing 10 days of maintenance, which is due to be completed on Thursday.
The letter heightened fears across Europe that Moscow might not be able to restart the pipeline until the time the maintenance period is over as a retaliation to sanctions imposed against Russia for the conflict in Ukraine which is escalating the energy crisis, which could end up pushing the region into recession.
Also known by the name of “act in the name of God” clause that is common in contracts for business and defines circumstances in which extreme events let a person off the legal obligation. This does not indicate that Gazprom will cease deliveries but rather that it should not be held accountable if it fails to adhere to the terms of contract.
Russian gas supply has been decreasing through important routes for a few months, including through Ukraine and Belarus and through the Nord Stream 1 pipeline under the Baltic Sea.
A source in the trading industry, who asked not be named as a result of the sensitive nature of the matter, stated that the force majeure affected supplies through Nord Stream 1.
“This is a sign of a first indication that gas supply via NS1 may probably not resume once the 10-day maintenance period has expired,” said Hans van Cleef the chief energy analyst for ABN Amro.
“Depending on what “extraordinary” circumstances are to declare force majeure and whether these are technical issues or more of a political nature this could be that the next stage in the escalate between Russia and Europe/Germany” he said.
Uniper the largest importer in Germany of Russian gas, was one of the customers who claimed that they received a notice, and had dismissed the claim as unjustified.
RWE (RWEG.DE), Germany’s largest power producer , and an additional importer for Russian gas, also stated it was served with an order of force majeure.
“Please know that we can’t provide any information about its particulars or our legal opinions,” the company said.
Gazprom reduced Nord Stream 1 capacity to 40 percent on June 14 at the time that Gazprom stated in its letter to the buyers was the date of the onset of force majeure.
Gazprom claimed that sanctions were responsible for the reduction, citing the delays on the release of gas turbines that was removed from service in Canada by the equipment manufacturer Siemens Energy (ENR1n.DE).
Canada has sent the turbine to the pipeline Germany via plane on July 17 after the repair work was complete, Kommersant newspaper reported on Monday, citing sources who were familiar with the issue.
It could take 5 to 7 days to get the turbine into Russia The report says in the event of no difficulties with customs and logistics. The German economy ministry stated Monday that it would not give details about the turbine’s location.
A ministry spokesperson said it was a replacement component which was intended to be utilized only until September. This means that the absence of the part could not be the sole reason for the decrease in gas flows in the months prior to maintenance.
Austrian energy and oil firm OMV (OMVV.VI) however, stated that it was expecting gas deliveries to Russia via Nord Stream 1 pipeline Nord Stream 1 pipeline to be resumed as planned following the interruption. read more
“Gazprom’s motives are not clear and the decision is unlikely to have any significant influence on the existing situation,” said Zongqiang Luo Gas analyst at the consulting firm Rystad Energy.
The European Union, which has issued sanctions against Moscow and is aiming to stop the use of Russian fossil fuels before 2027 but would like supplies to continue while it works on alternatives to fossil fuels.
“Russia continues to make use of natural gas for weapon of war or economic instrument,” said White House spokesperson Karine Jean-Pierre. She added that the Biden administration is working to decrease Europe’s dependence on Russian energy sources. “Russia’s influence on energy has placed an enormous pressure on the markets for energy as well as a rise in costs for consumers and posed a threat to the security of energy in the world.”
For Moscow as well as for Gazprom and Gazprom, energy flows are an essential source of revenue because Western sanctions against the Russian invasion into Ukraine that is what the Kremlin calls”a “special military operation” have caused strain on Russian finances.
In the words of the Russian Finance Ministry, the federal budget raked in 6.4 trillion rubles ($114.29 billion) from gas and oil sales in the beginning of this year. This compares to 9.5 trillion roubles over the entire period year 2022.The grace period for making payments for two Gazprom’s international bonds runs out on July 19 in the event that foreign creditors don’t get paid within the grace period, the company could technically be in default.