ER Editor: We’re doing two reports here, one from Dutch outlet Front Nieuws and one from Zerohedge.
A reminder that to declare ‘force majeure’ in the operation of a contract is to free both parties from responsibilities due to an event that is considered extraordinary and outside the control of these parties, such as an act of God, war, terrorism, a pandemic, etc.
A further reminder that the EU is preparing its SEVENTH round of sanctions against Russia. See EU Readying 7th Round Of Anti-Russia Sanctions, Even As Oil Price-Cap Likely Shelved
Oh dear… “Force Majeure”: Gazprom cannot meet certain gas deliveries to Europe
HUH – The Russian gas energy company Gazprom has said it will have to stop supplying natural gas from Russia to at least one major European customer. The reason for this was “force majeure” (“Force Majeure”). The move is likely directly related to current political tensions and the West’s recent further moves against Russia.
Russian gas-power company Gazprom has stated that it will no longer be able to supply natural gas to at least one major European customer, Reuters reports. The company cited “force majeure” as the reason. Gazprom was unable to meet its delivery obligations due to “extraordinary” circumstances beyond its control, it said in a letter. This applies retroactively to deliveries from June 14 through the Nord Stream 1 pipeline. The company itself initially did not comment.
The move is likely to be directly related to the current tensions between Russia and the West over the war in Ukraine. The European Union has imposed extensive sanctions against Moscow, declaring that it will no longer use fossil fuels from Russia by 2027.
As the President of the Council of the EU, Charles Michel, announced Monday after consultations with the foreign ministers of the member states, the EU also wants to make an additional €500 million available for the supply of arms and equipment to the Ukrainian armed forces. (ER: upping the ante much?) This brings EU funding for military aid to Ukraine to EUR 2.5 billion.
The Russian gas company Gazprom has justified the failure to supply gas to its customer Uniper with force majeure. Uniper had received a letter from Gazprom Export, a spokesman for the energy supplier told the financial news agency dpa-AFX on Monday afternoon in Düsseldorf. Gazprom Export is a wholly owned subsidiary of the Russian state group.
In the letter, Gazprom Export had retroactively claimed “force majeure” for past and current shortages in gas supplies. However, according to the spokesperson, Uniper does not consider this justified and has formally rejected this claim.
Earlier, the Reuters news agency had reported, without naming the group, that Gazprom had approached at least one customer with the letter. Gazprom was unable to meet its delivery obligations due to “extraordinary” circumstances beyond its control, it said. This applies retroactively to deliveries from June 14 via the Nord Stream 1 pipeline. The Russian company itself initially did not comment.
Already days before the July 22 European “Doomsday” when the scheduled Russian 10-day maintenance of the crucial Nord Stream pipeline to Germany is slated to end – but which was thrown into deep doubt given Gazprom recently said it can no longer guarantee its “good functioning” due to crucial turbines being previously held up in Canada related to sanctions – the Russian energy giant has declared Force Majeure to one major European customer.
Simply put, Gazprom declared extraordinary and extreme circumstances to void itself from all contractual obligations to this customer, thus the gas will stop flowing indefinitely, as Reuters reports in a breaking development Monday, “Russian gas export monopoly Gazprom has declared force majeure on gas supplies to Europe to at least one major customer starting June 14, according to the letter seen by Reuters.” The letter is dated July 14. “It said the force majeure measure, a clause invoked when a business is hit by something beyond its control, was effective from deliveries starting from June 14,” writes Reuters.
The letter invoked “extraordinary” circumstances outside the company’s control, Reuters continues, citing a source saying the customer in question is Germany via the Nord Stream 1 pipeline.
And Bloomberg is also confirming:
- GAZPROM SENT FORCE MAJEURE NOTICE TO AT LEAST 3 BUYERS
- GAZPROM FORCE MAJEURE NOTICE APPLIES TO FLOWS FROM JUNE 14
- UNIPER SAYS IT HAS RECEIVED LETTER FROM GAZPROM EXPORT IN WHICH COMPANY RETROACTIVELY CLAIMS FORCE MAJEURE FOR PAST AND CURRENT SHORTFALLS IN GAS DELIVERIES
- UNIPER: WE CONSIDER THIS TO BE UNJUSTIFIED AND HAVE FORMALLY REJECTED FORCE MAJEURE CLAIM
As we’ve been detailing, German authorities have of late taken unprecedented steps in anticipation of an enduring Russian gas halt, essentially dimming the lights across the country – which has included everything from limiting hot water, to shutting down swimming pools, to quite literally dimming city street lights as it entered “alarm” stage over dwindling supply.
And as demonstrated in the Monday morning oil price spike (below: WTI crude futures for September), the bid for oil will remain strong the longer the force majeure holds, given utility companies and the manufacturing sector are likely to seek transition to oil from gas…
It seems this letter declaring its legal release from supply obligations going back to June 14 is in preparation for definitive action on July 22, namely that the pipeline’s operations are likely to remain suspended past the scheduled reboot/supply back online designated date.
EU – Whilst you are distracted by hysterical news reports about climate, the real heat (or lack of) is in Europe.
Russian Gazprom has declared a Force Majeure notice on gas deliveries.
Meaning … there won’t be any!
This is huge news.https://t.co/gMilU5VKSr
— Bernie’s Tweets (@BernieSpofforth) July 18, 2022
In an analysis from earlier this month (available to pro subscribers), UBS economists laid out a detailed vision of what they see happening if Russia halts gas deliveries to Europe: It would reduce corporate earnings by more than 15%. The market selloff would exceed 20% in the Stoxx 600 and the euro would drop to 90 cents. The rush for safe assets would drive benchmark German bund yields to 0%, they wrote.
“We stress that these projections should be seen as rough approximations and by no means as a worse-case scenario,” wrote Arend Kapteyn, chief economist at UBS.
“We could easily conceive economic disruptions that lead to more negative growth outcomes.”
To be sure, markets are already pricing in some of the damage, beginning with the euro which starting this month traded at a fresh two-decade low and touched parity with the dollar, something it hasn’t done since 2002.
Meanwhile the Paris-based International Energy Agency (IEA) is still even amid this “red alert crisis” for Europe bizarrely focused on responding to the emergency in a way “consistent with the EU’s climate ambitions”… this as Germany and other European populations are about to clearly enter an extremely difficult winter, to put it mildly.
From a fresh IEA report: After many months of warning signs, Russia’s latest moves to squeeze natural gas flows are a red alert for the EU – a snippet of which is below…
* * *
The world is experiencing the first truly global energy crisis in history. And as the International Energy Agency has been warning for many months, the situation is especially perilous in Europe, which is at the epicentre of the energy market turmoil. I’m particularly concerned about the months ahead.
The gas crisis in Europe has been building for a while, and Russia’s role in it has been clear from the beginning. In September 2021 – five months before Russia’s invasion of Ukraine – the IEA pointed out that Russia was preventing a significant amount of gas from reaching Europe (ER: This was around the time construction of Nord Stream 2 was finally finished and awaiting certification from Germany …) We raised the alarm further in January, highlighting how Russia’s large and unjustified reductions in supplies to Europe were creating “artificial tightness in markets” and driving up prices at exactly the same time as tensions were rising over Ukraine.
After Russia invaded Ukraine on 24 February, nobody in Europe or elsewhere could be under any illusions about the risks around Russian energy supplies. Just a week after the invasion started, the IEA released our 10-Point Plan to Reduce the European Union’s Reliance on Russian Natural Gas, setting out the practical actions Europe could take. It stressed the need to maximise gas supplies from other sources; accelerate the deployment of solar and wind (ER: oh, good grief!); make the most of existing low emissions energy sources, such as renewables and nuclear; ramp up energy efficiency measures in homes and businesses; and take steps to save energy by turning down the thermostat.
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