Europe’s Energy Crisis Deepens as Gazprom Declares Force Majeure on Gas Supplies
- July 19, 2022
- Posted by: Quatro Strategies
- Category: Energy
Russia’s state owned natural gas monopoly Gazprom told customers in Europe it can’t guarantee gas supplies because of “extraordinary” circumstances. The move will further strain the already tense economic relations between Europe and Moscow. The company declared a force majeure retroactively on supplies from June 14. The news comes amid the scheduled Nord Stream 1 maintenance, which is scheduled to be completed on Thursday.
The Gazprom announcement increased fears in Europe that Russia will halt gas supplies via the Nord Stream 1 even when the maintenance is completed, in retaliation to sanctions imposed on Russia over its invasion of Ukraine. It would deepen Europe’s energy crisis, which could tip the region into recession.
A declaration of force majeure defines extreme circumstances that release a party from its contractual obligations. Although it does not necessarily mean that Russia will stop deliveries, the clause suggests it should not be held responsible if it fails to meet contract terms.
Russian gas supplies have been declining via major routes for some months, including via Ukraine and Belarus as well as through the Nord Stream 1.
Analysts think this could be a hint that gas supplies via Nord Stream 1 will not resume after the maintenance period. It could also mean a next step in escalation between Europe and Russia depending on whether the force majeure circumstances are technical or political.
Uniper, Germany’s biggest importer of Russian gas, and RWE, its largest power producer, both received the force majeure notice. Uniper said it had formally rejected the claim as unjustified.
Gazprom cut Nord Stream 1 capacity to 40% on June 14, the date that Gazprom said would be the start of the force majeure. The Russian gas major blamed sanctions for the reduction, citing in particular the delay in the return of a gas turbine from maintenance in Canada by equipment supplier Siemens Energy.
Canada sent the turbine for the pipeline to Germany on July 17 after repair work had been completed.
Despite fears over a longer term outage, Austrian oil and gas group OMV said it expected gas deliveries from Russia through the Nord Stream 1 pipeline to resume as planned after the maintenance.
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.
Energy exports are an important revenue source for Moscow and for Gazprom, as Western sanctions over Russia’s invasion of Ukraine have strained Russian finances.
Russian Finance Ministry announced previously that the federal budget received 6.4 trillion roubles ($114.29 billion) from oil and gas sales in the first half of the year. This compares with a planned 9.5 trillion roubles for the whole of 2022.
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