Summary
- Gazprom said it will freeze supplies from Tuesday
- Engie blames dispute over contracts
- Moscow using gas as a ‘weapon of war’, says France
Russia’s Gazprom (GAZP.MM) said on August 30 that it would completely halt gas deliveries to leading European utility Engie (ENGIE.PA) from September 1 in a dispute over contracts, a move which will increase concerns about Europe’s winter energy supply.
Europe is already on notice that Gazprom will close the Nord Stream 1 gas pipeline to Germany from Aug. 31 to Sept. 2 for servicing, and there is some concern that Moscow, which has reduced the pipeline’s supply to just 20% of capacity, may scale up the pressure by postponing the restart.
In a statement, Gazprom said Engie had not fully settled last month’s gas deliveries. It stated:
“In this regard, Gazprom Export notified Engie of the complete suspension of gas supplies starting from Sept. 1, 2022, until the moment it receives full payment for the gas it has supplied.”
Engie, which has a 9% stake in Nord Stream, refused to comment. It had previously said Gazprom supplies would be further cut but provided no details. Gazprom deliveries to Engie had already fallen largely since Russia’s invasion of Ukraine and Finance Minister Bruno Le Maire cautioned that “a drastic cut” risked threatening France’s forecast of 2.5% GDP growth for 2022.
France’s Energy Transition Minister Agnes Pannier-Runacher told France Inter radio:
“Very clearly Russia is using gas as a weapon of war and we must prepare for the worst-case scenario of a complete interruption of supplies.”
Gazprom is not complying with its contracts, an aide to Pannier-Runacher told Reuters, adding that France has branched out its energy supplies and the most recent squeeze will not jeopardize its winter gas supply.
Russia currently makes up less than 4% of Engie’s gas imports from 17% before the invasion of Ukraine, an Engie spokesperson said. Supply in recent months from Russia had dropped to just 1.5 terawatt-hours (TWh), the utility said.
Engie refused to say to what levels volumes would now drop.
France is not as reliant on Russian gas compared to its European peers. Prior to the Ukrainian war, Norway supplied more than a third of France’s gas, with Qatar, the Netherlands, and Algeria also providing smaller volumes, government data showed.
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Government spokesman Olivier Veran reasserted France would stock up its gas reserves by the end of the summer.
“We’re ahead of schedule,” he told franceinfo radio. The government says reserves are currently around 90% full.
The French 2023 baseload power price dropped steeply in a round of profit-taking after record highs on Monday, but at 730 euros per Megawatt-hour (MWh), it stayed 10 times higher than during the same period last year, indicating huge uncertainty over energy supplies.
Engie said it had taken steps to protect itself and fulfill its commitments to customers. Russia’s reduction and disruption in supply have sent gas prices rising and pushed European governments to fight for alternative supply ahead of the winter.
In France, the problem is aggravated by outages in the nuclear sector where output is at a 30-year low. Nuclear makes up some 70% of its power production.
Prime Minister Elisabeth Borne on Monday advised French companies to draft energy savings plans by September, cautioning they would be affected first if France is forced to ration the supply of electricity and gas.
Engie confirmed on Monday that it was holding talks with Algeria’s Sonatrach to boost gas imports from the North African country in the medium term.
