(Bloomberg) — An Austrian utility’s decision to stop paying for supplies from Gazprom PJSC could set a precedent for others to follow as Europe looks to reduce its dependence on the Russian gas giant.
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Gazprom responded by halting deliveries to Austria’s OMV AG, highlighting the serious consequences. Lawyers say the precedent could open the floodgates for similar action by other companies as pending cases move through international courts.
Companies from Italy’s Eni SpA to Germany’s RWE AG say they are owed compensation for the cost of replacing supplies when Gazprom stopped supplying gas in 2022.
“Several cases are pending, and more awards are expected in the coming months,” said Agnieszka Ason, an energy lawyer and visiting scholar at the Oxford Institute for Energy Studies. “If more damages are awarded to European importers – and that is likely to be the case – and at least some damages can be enforced, this will put a lot of pressure on Gazprom’s financial position,” she said.
The possibility of more gas cuts is another reason for traders to doubt whether Russian flows to Europe will continue for much longer. Also in the mix are U.S. sanctions on Gazprombank, which is used by European companies to pay for gas, and uncertainty over flows through Ukraine when the transit deal expires at the end of this year.
Companies claiming compensation from Gazprom are unlikely to receive a cash payment from the Russian gas giant and, like OMV, may have to figure out alternative ways to get their money back.
OMV stopped paying for gas it received from Russia via Ukraine, but that prompted Gazprom to halt supplies almost immediately. Given this example, other companies that decide not to pay should be sure they have alternative supplies to survive without Gazprom.
For the Russian company, cutting off a customer means losing a new foothold in Europe.
Gas is one of the few valuable assets Gazprom still has in Europe. The company’s international assets shrank after the nationalization of Gazprom Germania at the height of the energy crisis. Arbitrage rewards are awarded on a first-come, first-served basis, and in Europe, unlike the US, they have no expiration period.
Uniper SE, one of the former Gazprom partners hardest hit by a supply slump, has been awarded more than 13 billion euros in compensation for Russian gas volumes that have not been delivered since mid-2022. The international arbitration ruling allowed the termination of Russian supply contracts, some of which extended into the middle of the next decade.
Germany no longer receives gas from Gazprom, but was able to offset approximately €530 million in payment obligations against the damage, which corresponded to Uniper’s unpaid bill from August 2022. It is unclear how much of the damage it will still be able to recover.
“From the current perspective, it is not yet possible to estimate whether significant amounts can be expected,” Uniper said.
Gas pipeline operator NET4GAS in the past received monthly payments for the transport of gas through the Czech Republic. The company won the arbitration it filed last year, seeking damages after Gazprom stopped paying. NET4GAS declined to comment further.
The awards come at a difficult time for Europe, as energy security concerns are becoming increasingly apparent. Further cuts to Russia’s remaining flows at a time when gas supplies are rapidly depleting risk further hurting households as they continue to feel the impact of a crisis on living costs. The European economy is struggling, especially in Germany, where manufacturers are struggling to stay profitable with higher energy prices.
As the market prepares for the possible halt in supplies once the Russia-Ukraine transit deal officially expires at the end of this year, earlier cuts would mark a major event even with European efforts to move away from Russian gas.
Some landlocked countries in Central-Eastern Europe have access to alternatives such as liquefied natural gas, but that is more expensive.
One of the high-profile ongoing arbitrations is that of Italy’s Eni over reduced gas supplies in 2022. Eni is one of Gazprom’s oldest and largest customers and the country got about 40% of its gas from Russia before Moscow’s invasion of Ukraine. Even if the company no longer buys gas directly from Gazprom, the impact of a ruling is likely to be felt across the European gas market, just like with Uniper and OMV.
Gazprom did not respond to a request for comment. Eni declined to comment. RWE said the arbitration proceedings initiated in 2022 are still ongoing. Innogy Energie spokesman Pavel Grochal said the company would not comment on an ongoing lawsuit. Engie declined to comment on any disputes. Orlen declined to comment. Bulgargaz did not respond to requests for comment.
“The CEZ arbitration against Gazprom will continue, independently of Gazprom’s other disputes. We will not speculate about the future,” said CEZ spokesperson Ladislav Kriz.
–With help from Alberto Brambilla, Maciej Martewicz, Leo Laikola, Petra Sorge, Krystof Chamonikolas, Daniel Hornak, Eva Brendel, Slav Okov and Francois de Beaupuy.
