(Bloomberg) -- The decision by an Austrian utility to stop paying for supplies from Gazprom PJSC may set a precedent for others to follow as Europe looks to cut its dependence on the Russian gas giant.
Gazprom responded by halting supplies to Austria’s OMV AG highlighting the serious consequences. Lawyers say the precedent could open the floodgates to similar action by other firms as pending cases move through international courts.
Companies from Italy’s Eni SpA to RWE AG in Germany, say they are owed compensation for the cost to replace supplies when Gazprom stopped delivering some gas in 2022.
“Several cases are pending, with more awards expected in the coming months,” said Agnieszka Ason, an energy lawyer and visiting research fellow at the Oxford Institute for Energy Studies. “If more damages are awarded to European importers — and this will likely be the case — and at least some awards can be enforced, this will put a lot of pressure on Gazprom’s financial position,” she said.
The possibility of more gas cut offs is yet another reason for traders to doubt that Russian flows will continue to Europe for much longer. Also in the mix are US sanctions on Gazprombank, used by European firms to pay for gas, and uncertainty over flows through Ukraine when the transit deal ends at the end of the year.
Companies seeking compensation from Gazprom are unlikely to get a cash payment from the Russian gas giant and, like OMV, may need to work out alternative ways to get paid back.
OMV stopped paying for gas it was receiving from Russia through Ukraine but that prompted Gazprom to cut supplies almost immediately. Given this example, other companies deciding not to pay, need to be sure they’ve got alternative supplies to survive without Gazprom.
For the Russian company, cutting off a customer means losing another foothold in Europe.
Gas is one of the only valuable assets that Gazprom still has in Europe. The company’s international assets shrank following the nationalization of Gazprom Germania at height of the energy crisis. Arbitration awards are granted on a first come, first served basis and in Europe, unlike the US, they do not have an expiration period.
Uniper SE, one of the former Gazprom partners most severely hit by a slump in supplies, won more than €13 billion in damages for Russian gas volumes not supplied since mid-2022. The international arbitration ruling allowed it to terminate Russian supply contracts, some of which ran until the middle of the next decade.
Germany no longer gets any gas from Gazprom but was able to offset roughly €530 million in payment obligations against the damages, which corresponded to Uniper’s unpaid August 2022 bill. It’s unclear how much more of the damages it will be able to recover.
“From today’s perspective, it is not yet possible to estimate whether significant amounts are to be expected,” Uniper said.
Gas pipeline operator NET4GAS in the past received monthly payments for transporting gas through the Czech Republic. The company won arbitration it initiated last year seeking damages after Gazprom stopped paying. NET4GAS declined to comment further.
The awards come at a tricky time for Europe, with energy security concerns coming into focus. Further cuts to the remaining Russian flows at a time when gas reserves are quickly depleting risks inflicting further pain to households still feeling the effects of a cost-of-living crisis. Europe’s economy is struggling especially in Germany where manufacturers are struggling to remain profitable with higher energy prices.
While the market has been preparing for the potential halt of supplies once the transit agreement between Russia and Ukraine officially expires at the end of the year, earlier cuts would mark a significant event even with Europe’s efforts to move away from Russian gas.
Some landlocked nations in central east Europe can access alternatives like liquefied natural gas but it’s more expensive.
Among high-profile pending arbitrations cases is from Italy’s Eni over reduced gas deliveries in 2022. Eni is one of Gazprom’s oldest and largest clients and the nation procured about 40% of its gas from Russia before Moscow’s invasion of Ukraine. Even if the firm doesn’t buy the gas directly from Gazprom anymore, the impact of any ruling is likely to be felt throughout the European gas market like with Uniper and OMV.
Gazprom didn’t respond to a request for comment. Eni declined to comment. RWE said the arbitration proceedings started in 2022 are still ongoing. Innogy Energie’s spokesman Pavel Grochal said the company didn’t want to comment on an ongoing litigation process. Engie declined to comment on any potential dispute. Orlen declined to comment. Bulgargaz didn’t respond to requests for comment.
“The CEZ arbitration against Gazprom is continuing independently of Gazprom’s other disputes. We won’t speculate about the future,” CEZ spokesperson Ladislav Kriz said.
--With assistance from Alberto Brambilla, Maciej Martewicz, Leo Laikola, Petra Sorge, Krystof Chamonikolas, Daniel Hornak, Eva Brendel, Slav Okov and Francois de Beaupuy.
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