OMV warns Russia could cut off its gas supply

By Newsbase May 22, 2024

Austrian oil and gas company OMV warned on May 22 that gas supply from Russia’s Gazprom could be halted in relation with a foreign court ruling, without identifying the case.

In a statement, the group said it had found out about the potential suspension through a ruling obtained by a major European energy company, which it did not name. It added that it would be able to find replacements to cover the lost Russian supply, including Norwegian gas and LNG.

The ruling that OMV referred to, if enforced, would require the Austrian company’s subsidiary OMV Gas Marketing & Trading (OGMT) to pay the unnamed European energy company, in lieu of Gazprom.

“In this respect, it is currently not known to OGMT whether and when such an enforcement might occur,” OMV’s statement read.

According to OGMT, Gazprom Export will likely suspend gas supply in response, pointing to the Russian company’s conduct in similar situations in the past.

Russia drastically cut gas supply to Europe in 2022, triggered a number of legal disputes worth hundreds of millions of dollars and in some cases even more. While Russia has claimed money for buyers’ failure to pay under contract terms, buyers have sought compensation for the non-delivery of supplies.

Among these parties is Germany’s Uniper, which had to make costly purchases of gas on the spot market after losing its Russian supply, ultimately leading to the German government having to bail the company out. OMV declined to comment on specific measures it had taken in response to Gazprom defaulting on gas supply, when asked by Reuters if it was involved in the OMV case.

Uniper anticipates a Stockholm tribunal will make a ruling in the coming months on whether more than 250 TWh of contracts with Gazprom can be cancelled.

Austrian energy regulator E-Control has said a potential halt in Russian gas deliveries had been taken into account in its 2024/25 and 2025/26 winter supply scenarios. In such an event, Austria could source gas via routes from Italy and Germany, it said, adding that utilities had taken appropriate measures. However, it warned that prices could rise.

Austria’s government drafted a bill in April on halting Russian gas imports by 2027-28,  even though OMV’s long-term contract with Gazprom does not expire until 2040. The draft legislation would require all gas companies to phase out Russian imports year by year, with the goal of eliminating them completely by the gas year starting October 1, 2027. 

Currently Austria relies on Russia for an overwhelming majority of its gas, with this dependence reaching 98% as of December last year. Austria consumed roughly 7.7bn cubic metres (bcm) of gas in 2023, with the lion’s share of supply covered by OMV’s Russian contract, which has a take-or-pay clause that means the company must pay for at least 6 bcm per year regardless of how much it actually takes.

In related news, a Russian court on May 22 banned OGMT from taking Gazprom Export to an arbitration court in Stockholm, threatening it with a €575.2mn ($624.3mn) fine if it went ahead with the proceedings. OMV has said it considers the legal action in Russia to be illegitimate, and it is preparing an appeal. The same court in St Petersburg issued the same ruling in April against OMV Exploration and Production.

OMV CEO Alfred Stern said last month that the Austrian firm had launched arbitration proceedings against Gazprom. Among other matters, the case relates to the company’s stake in a Siberian gas field.

 

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