Gazprom’s UK travails threaten businesses in Britain and beyond

Security guards were in place since this week Protest Outside Gazprom Marketing & Trading Against the War in Ukraine, the Russian conglomerate’s global trading arm is headquartered in London’s Regent’s Park.

But performance is the least of the business’s concerns. Customers and suppliers are seeking to cut ties with any part of the Kremlin-controlled energy giant, and its landlords are trying to bail it out.

Now UK officials are preparing rescue plans for both GM&T and UK market-leading retail division Gazprom Energy, amid fears that one or both could collapse.

GM&T Gas is a major trader of liquefied natural gas and electricity, which it buys and sells worldwide from sources including Norway and the North Sea. It also buys gas for Gazprom Energy, which supplies about a fifth of all non-domestic gas to around 30,000 commercial customers in the UK.

Gazprom Energy’s customers include shops, pubs, NHS trusts and local authorities, as well as two-thirds of the UK’s heavy energy users – vital industries that produce goods ranging from glass and ceramics to fertilisers, paper and steel.

Business leaders and analysts have warned that the collapse would cause chaos in European gas markets as well as unsustainable price hikes for British customers, many of whom have bought gas in advance at cheaper rates several years ago and have 10% on their bills. fold increase.

Gazprom’s troubles have raised questions about how Britain’s business has become so dependent on the Russian-owned gas provider.

But Jonathan Stern, a distinguished research fellow at the Oxford Institute for Energy Studies, sees it as a logical consequence of decisions to privatize and liberalize energy markets 40 years ago, first in Britain then Europe.

“We have created this market model with more and more companies competing for gas supply and it cannot be surprising that Gazprom is one of the winners,” he said.

After the acquisition of Pennine Natural Gas in 2006, Gazprom became the largest UK provider of gas to the energy industry. The company still has an office in Manchester as well as London, with a total workforce of about 350.

Although a small part of Gazprom’s global operations, GM&T has proved a lucrative business for the Russian state-owned energy giant in the past. It paid nearly £1.3bn in dividends to its immediate parent entity, Gazprom Germania, between 2016 and 2020, according to its annual report.

GM&T settled its trading position with buyers and sellers last month, but there are concerns about whether it will meet next month’s payment deadline, according to people close to the business.

The UK government has not banned Gazprom’s gas trading activities and Germany is arguing against sanctions in Europe, where about 40 percent of its supplies come from Russia.

But the number of measures against the Russian group grows by the day. Britain on Thursday banned Gazprom Bank, the country’s payment channel for oil and gas.

People close to the company say any formal sanctions against GM&T or Gazprom Energy could wreck business overnight.

GM&T already risks a liquidity crisis as counterparties don’t want to do business with the business and slow payment processing by banks, which is disrupting cash flows, the people said.

Energy companies including Britain’s Centrica, Germany’s Eon and Norway’s Statecraft have said they intend to stop trading with GM&T.

In the UK, Gazprom Energy’s customers are struggling to find alternative gas suppliers. Competitors are reluctant to take on new customers at a time when prices are still at historic highs. If businesses want to cancel their contracts with Gazprom early, many will have to pay a penalty provision.

“The reality for customers is that unless the contracts expire, the impact is likely to be seriously negative,” Stern said.

GM&T says it is trying to sell Gazprom Energy, but a sharp rise in wholesale gas prices is pulling off the balance sheets of many potential buyers. GM&T also owns all hedges for Gazprom Energy and any buyer may have to take them.

Some rivals are already leaving the trading market. Last week, Scottishpower, owned by Spanish utility giant Iberdrola, said it would Stop supplying industrial and commercial customers.

“I’m not sure how anyone can pay for it,” said a person contacted by Gazprom Energy.

It is also a concern for the UK government, which is on standby to put Gazprom Energy in a “special administration”, a de facto nationalisation, where it will be placed as a concern with taxpayer support, costing in the billions. Pounds can run.

Treasury policy dictates that nationalized companies cannot buy supplies in advance or participate in hedging. It threatens to raise the cost to the taxpayer to support the bulb already in place, the domestic supplier placed under special administration last year.

Stern cautioned, “While it may help customers feel better if the government takes over Gazprom Energy, it will still be buying from GM&T or buying it from someone else and it will not be able to buy it from existing companies.” The market is tough and expensive.”

A government spokeswoman said it was still looking at options. GM&T declined to comment.

But a person close to the company said it was unlikely that any collapse of Gazprom Energy or GM&T would have a detrimental effect on Russian President Vladimir Putin’s war machine.

“I bet there are some people close to Putin who are hoping there will be sanctions and factories and businesses across Europe will be closed.”

Additional reporting by Jim Picard

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