Kremlin freezes out Shell as Europe tumbles towards power crisis
EUROPE lurched closer to an energy crisis yesterday after the Kremlin cut off gas supplies to major buyers including Shell.
Russia’s state-owned gas supplier, Gazprom, said supplies to Shell in Germany as well as to Ørsted in Denmark will be cut off today after they refused to bow to Putin’s demands to pay in roubles.
Gazprom cut supplies to the Netherlands yesterday after doing the same to Poland, Bulgaria and Finland this month, weaponising gas amid its war in Ukraine.
FTSE 100 company Shell produces fossil fuels itself, but also has a vast trading division that buys gas from companies such as Gazprom and sells it on.
The company said in March that it planned to withdraw from its involvement in Russian energy “in a phased manner”. It has now been forced to abandon the market immediately.
Responding to Gazprom’s statement, Shell said: “Shell has not agreed to new payment terms set out by Gazprom. We will work to continue supplying our customers in Europe through our diverse portfolio of gas supply. Shell continues to work on a phased withdrawal from Russian hydrocarbons, in compliance with applicable laws and regulations.”
Shell’s contract cut by Gazprom involves a maximum of 1.2bn cubic metres of gas per year, delivered in Germany for Shell to sell where it is needed.
The EU imported about 155bn cubic metres of gas from Russia in 2021, amounting to about 40pc of its gas consumption. The Kremlin last month ordered buyers in “unfriendly” countries to pay for gas in roubles, in what was seen as retaliation over sanctions over its war on Ukraine.
Most of Gazprom’s contracts with European buyers remain in place after they found ways to comply with the demand, with the amount cut off thought to equal less than 20bn cubic metres in total.
Ørsted said yesterday its supplies from Gazprom would be cut off at 6am today. Mads Nipper, chief executive, said the company “stand[s] firm in our refusal to pay in roubles”.
He added since there is no direct gas pipeline between Russia and Denmark, Russia cannot cut the country off, but Denmark will need to buy more on the European market.
Mr Nipper said: “We expect this to be possible. We are in ongoing dialogue with the authorities, and we trust that the authorities, who have the overall overview of the supply situation in Denmark, are prepared for the situation.”
James Huckstepp, manager for European gas analytics at S&P Global Platts, said efforts to replace Russian supplies are being helped by lower demand in Asia owing to Covid lockdowns and other factors, although things will become more difficult towards the end of the year.
It comes as Westminster is considering paying for a supply of coal to keep power stations online that would otherwise be shutting before winter. Energy companies Drax, EDF and Uniper would receive the supplies and delay the closure of some coal plants in September, Bloomberg reported.
Britain gets less than 4pc of its gas directly from Russia but there are concerns about a significant knock-on effect in Britain if Russia goes further in cutting off supplies to Europe over the next few months.
Whitehall planners have warned that under a worst case scenario, first reported by The Times, electricity would need to be rationed to 6m homes in the morning and evenings.
Gas is used to generate more than a third of Britain’s electricity, and the market is already set to be tight this winter due to the planned closure of some UK power plants and ongoing problems with nuclear reactors in France. Corrosion problems mean up to half of the state-owned EDF’S fleet could be out of action. This could result in France importing more electricity from Britain.
Meanwhile, the UK market is about to lose several significant power stations, including the Hinkley Point B and Hunterston B nuclear plants, and a government auction to secure back-up generation capacity fell short, with generators offering less than was requested.
Kathryn Porter, an energy consultant at Watt Logic, said this meant power available during the busiest periods would be extremely tight this winter.
A spokesman for National Grid ESO, the electricity system operator, said it would publish its winter forecasts in July.
‘With 6GW of capacity closing and us exporting more to France, it wipes out any spare margin we have’