Gazprom's global energy supplies disrupted as sanctions against Russia bite

Gazprom's global energy supplies disrupted as sanctions against Russia bite
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Updated 19 July 2022

Gazprom's global energy supplies disrupted as sanctions against Russia bite

Gazprom's global energy supplies disrupted as sanctions against Russia bite

Gazprom Singapore has failed to deliver some liquefied natural gas cargoes to Indian state firm GAIL and has said it may not be able to meet supplies under their long-term deal, three sources familiar with the matter said.

The sources did not say why Gazprom Marketing and Trading Singapore did not deliver the supplies. 

Global competition for the super-chilled fuel and low inventories have sent Asian LNG prices soaring.

GMTS is a subsidiary of Gazprom Germania, a former unit of Russian energy giant Gazprom, now under the control of the German government.

“We are facing difficulties, (the) situation is quite tight as GMTS has already defaulted on some cargoes and they have said they may not be able to meet commitments under the contract,” said one of the sources. 

They declined to be named because they were not authorized to speak to the media.

Reuters reported on Monday that Gazprom had told customers in Europe that it couldn’t guarantee gas supplies due to “extraordinary” circumstances. 

According to a letter dated July 14, Gazprom declared “force majeure” on supplies, meaning it did not have to meet its contractual obligations.

GAIL, GMTS, Gazprom and Gazprom Germania did not respond to Reuters requests for comment.

GAIL, which imports and distributes gas and also operates India’s largest gas pipeline network, agreed in 2012 a 20-year deal with Russia’s Gazprom for annual purchases of an average 2.5 million tons of LNG. 

Supplies under the contract began in 2018.

GMTS had signed the deal on behalf of Gazprom. At the time, Gazprom Germania was a unit of the Russian state firm.

However, following Western sanctions against Russia over its invasion of Ukraine, Gazprom gave up ownership of Gazprom Germania in early April without explanation and placed parts of it under Russian sanctions.

Considered key for Germany’s energy security, the company is now controlled by German regulator Bundesnetzagentur.

Responsibility to meet the supply commitment lies with Gazprom, which had asked GAIL to sign the deal with the Singapore-based entity, said the sources, adding the Indian company was in talks with the Russian gas firm.

“We are looking into the commercial aspects of the deal and working out some alternative arrangements including spot purchases,” a second source said.

Sources said GAIL may have to step up spot purchases of LNG at higher prices to meet local demand.

Earlier this month, GAIL bought a spot LNG cargo at $38 per million British thermal units for August loading, two sources said.

GAIL was getting the gas under the deal with Gazprom at about $12-$14 per million British thermal units.

Gazprom’s ‘force majeure’

Russia’s state-owned energy giant Gazprom has blamed cuts in gas deliveries to Europe on “force majeure,” two major German customers said, adding to fears about further disruptions.

“We confirm that we have received a letter from Gazprom Export claiming force majeure retroactively for past and current gas supply shortfalls,” said Uniper, one of Germany’s biggest importers of Russian gas.

Fellow German energy giant RWE told AFP it had received a similar letter from Gazprom but declined to comment further.

Force majeure is a legal measure allowing companies to free themselves from contractual obligations in light of circumstances beyond their control.

Gazprom has cut flows to Germany via the vital Nord Stream 1 pipeline by some 60 percent in recent weeks, blaming the absence of a Siemens gas turbine that was undergoing repairs in Canada.

The repaired turbine is currently understood to be en route to Russia, according to German media.

The German government has rejected Gazprom’s turbine explanation and believes Russia is squeezing supplies in retaliation for Western sanctions on Moscow over its invasion of Ukraine.

The Nord Stream 1 pipeline under the Baltic Sea has been shut down since July 11 to undergo annual maintenance and is due to reopen on Thursday but Germany fears Russia will seize the opportunity to simply keep the taps closed, plunging the continent into an energy crisis.

Gazprom’s $40 billion MoU with National Iranian Oil Co.

On another note, Gazprom and the National Iranian Oil Co. signed on Tuesday a memorandum of understanding worth around $40 billion, Iran’s oil ministry’s news agency SHANA said.

The deal was signed during an online ceremony by the CEOs of both companies on the day Russian President Vladimir Putin arrives in Tehran for a summit with his Iranian and Turkish counterparts.

Gazprom will help NIOC in the development of the Kish and North Pars gas fields and also six oil fields, according to SHANA, it will also be involved in the completion of LNG projects and construction of gas export pipelines.

Iran sits on the world’s second-largest gas reserves after Russia, but US sanctions have hindered access to technology and slowed development of gas exports.

Putin’s visit to Tehran is being watched closely as Russia’s invasion of Ukraine has reconfigured the global oil and gas market, pushing prices to high levels which contribute to higher living costs and rising consumer inflation.