September 28, 2022

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Exclusive: Russia's Gazprom tells Europe it will stop controlling gas

Exclusive: Russia’s Gazprom tells Europe it will stop controlling gas

A view shows a screen bearing the Gazprom logo at the Saint Petersburg International Economic Forum (SPIEF) in Saint Petersburg, Russia, June 17, 2022. REUTERS/Anton Vaganov/

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LONDON (Reuters) – Russia’s Gazprom has told customers in Europe that it cannot guarantee gas supplies due to “extraordinary” conditions, according to a letter seen by Reuters, raising the stakes in an economic standoff with the West. Moscow’s invasion of Ukraine.

On July 14, the letter from the Russian state gas monopoly stated that it was declaring a case of force majeure on supplies, effective June 14.

Force majeure, otherwise known as the “act of God” clause, is a standard in employment contracts and stipulates extreme circumstances that relieve a party from its legal obligations.

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Gazprom (GAZP.MM) He has no immediate comment.

Uniper, Germany’s largest importer of Russian gas, was among the customers who said they had received a letter, and that it formally dismissed the claim as unjustified.

RWE (REWEG.DE)Germany’s largest energy producer and another importer of Russian gas said it had received a force majeure notification.

“Please understand that we cannot comment on its details or our legal opinion,” the company said.

A trade source, who asked not to be identified due to the sensitivity of the issue, said the force majeure relates to supplies through the Nord Stream 1 pipeline, a major supply route to Germany and beyond.

Flows through the pipeline have reached zero as the link is undergoing annual maintenance that began on July 11 and is due to end on Thursday. Read more

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Europe fears Moscow will keep the pipeline off in response to sanctions imposed on Russia over the war in Ukraine, adding to an energy crisis that threatens to plunge the region into a recession.

turbine delay

Already on June 14, Gazprom reduced the pipeline capacity to 40%, citing delays in a turbine being serviced in Canada by equipment supplier Siemens Energy. (ENR1n.DE).

Kommersant newspaper quoted informed sources as saying that Canada sent the turbines of the Nord Stream gas pipeline to Germany by plane on July 17 after completing the repair work. Read more

Provided there are no problems with logistics and customs, the report said, it will take another five to seven days for the turbines to reach Russia.

The German Economy Ministry said on Monday it could not provide details on the location of the turbines.

But a ministry spokesman said it was a replacement part that was only supposed to be used from September, meaning its absence could not be the real reason for the drop in gas flows prior to maintenance.

“This appears to be a first hint that gas supplies via NS1 may not resume after the 10-day maintenance work is over,” said Hans van Cleef, chief energy economist at ABN AMRO.

He added, “Depending on the ‘extraordinary’ circumstances that are being considered for the declaration of force majeure, and whether these issues are more technical or political, it may mean the next step in the escalation between Russia and Europe / Germany.”

Austrian oil and gas group OMV (OMVV.VI)However, on Monday, it said it expected to resume gas deliveries from Russia via the Nord Stream 1 pipeline as planned after the outage. Read more

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Russian gas supplies have been declining via major routes for a few months, including through Ukraine and Belarus as well as via Nord Stream 1 under the Baltic Sea.

The European Union, which has imposed sanctions on Moscow, aims to halt the use of Russian fossil fuels by 2027 but wants supplies to continue for now while developing alternative sources.

For Moscow and Gazprom, energy flows are a vital source of income when Western sanctions over Russia’s invasion of Ukraine, described by the Kremlin as a “special military operation,” put Russia’s financial strains on hold.

According to the Russian Finance Ministry, the federal budget received 6.4 trillion rubles ($115.32 billion) in oil and gas sales in the first half of the year. This is compared to the 9.5 trillion rubles planned 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.

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(Reporting by Julia Payne) Additional reporting by Christoph Stitz in Frankfurt, Bosorg Sharafeddine in London, by Nina Chestney in London; Editing by David Goodman, Edmund Blair and Barbara Lewis

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