November 30, 2022

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Russia is close to shutting down gas in Europe as Germany rejects allegations that it cannot honor contracts

Russia is close to shutting down gas in Europe as Germany rejects allegations that it cannot honor contracts

Russian energy giant Gazprom has said it cannot fulfill gas contracts with Europe.

Bloomberg | Bloomberg | Getty Images

LONDON – The Russian energy giant is threatening to send less gas to Europe – but Germany, one of its major importers, has rejected the idea.

Majority-owned Gazprom said Monday that it is not in a position to comply with gas contracts with Europe due to unforeseen circumstances.

German energy company Uniper confirmed to CNBC that Gazprom had alleged “force majeure” over its supplies. Force majeure, a legal term, occurs when unforeseen circumstances prevent a party from fulfilling its contractual obligations, theoretically exempting it from penalties.

“It is true that we have received a letter from Gazprom Export claiming force majeure retroactively due to past and present shortages of gas shipments. We consider this to be unjustified and officially reject the force majeure claim,” Uniper spokesman Lucas Wintings told CNBC Annette Weisbach. .

RWE, another German energy company, confirmed to CNBC that it had also received a force majeure notice from Gazprom.

Gazprom could not be reached for comment when contacted by CNBC on Tuesday.

Officials in Germany and elsewhere in Europe are becoming increasingly concerned about the possibility of a complete shutdown of gas supplies from Russia. These concerns intensified after the shutdown of Nord Stream 1 – the main gas pipeline from Russia to Germany earlier this month for maintenance work, with some doubting that flows will fully return after the works are completed on July 21.

European countries received about 40% of their gas imports from Russia before they invaded Ukraine. European officials were They are scrambling to end this dependencybut it is an expensive process and difficult to achieve overnight.

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The European Commission, the executive arm of the European Union, announced New Gas Deals With the United States and Azerbaijan, for example, as it searches for new suppliers of fossil fuels.

“This is clearly uncharted territory and unprecedented in this format,” Andreas Schroeder, head of energy analytics at research firm ICIS, told CNBC Squawk Box Europe on Tuesday.

“While the EU has succeeded in reducing the volume of hydrocarbon imports into Russia, they have not been able to bring down the price they are paying.”

Gas prices in Europe have risen as a result of reduced flows from Russia. But these higher prices mean Russia can send less gas to Europe and achieve the same thing – or even make more money than before. Schroeder called this the ‘balancing effect’.

Gas price in the first month At the Dutch TTF hub, a European standard for trading natural gas, it was up about 1% at 159 euros ($1.02) per megawatt-hour on Tuesday morning. Prices are up more than 600% compared to last year.