Luxembourgh Times

Russia curbs gas supply to France’s Engie as squeeze worsens

'We’re getting ready for the worst-case scenario, which is a complete cut-off'

Engie offices in Paris

Engie offices in Paris © Photo credit: Shutterstock

Source: Bloomberg

Europe faced a further squeeze in Russian energy supplies as Gazprom told French utility Engie it will reduce gas deliveries starting on Tuesday because of disagreements over some contracts.

Moscow has progressively choked shipments of the fuel to Europe in retaliation for sanctions related to its invasion of Ukraine. The cutbacks, which have so far mostly targeted Germany and eastern Europe, have plunged the continent in its worst energy crisis in 50 years, sending prices soaring amid concerns about supply shortages during the coming winter.

“We’re getting ready for the worst-case scenario, which is a complete cut-off,” French Energy Transition Minister Agnes Pannier-Runacher told France Inter radio when asked about Engie on Tuesday. She reiterated that Russia was using gas as a weapon of war.

The announcement follows Monday’s call from French Prime Minister Elisabeth Borne for businesses to cut energy use or face possible rationing this winter if Russia halts gas deliveries. A much higher than usual number of outages at Electricite de France’s aging nuclear reactors is also straining the energy market, sending gas and electricity prices in Europe to records.

“Gazprom has informed Engie of a reduction in gas deliveries, starting today, due to a disagreement between the parties on the application of some contracts,” the French utility said in a statement on Tuesday. “As previously announced, Engie had already secured the volumes necessary to meet its commitments towards its customers and its own requirements, and put in place several measures to significantly reduce any direct financial and physical impacts that could result from an interruption to gas supplies by Gazprom.”

Engie shares were trading 1.3% higher at 11:58 am in Paris.

Governments across the continent are scrambling to cut their dependence on Russian energy and drafting plans to ration fuel if conservation measures fall short. They are also spending tens of billions of euros to partly shield businesses and households from surging bills amid rising risks of recession. The European Union is preparing steps to limit power prices in the short term, and to sever the link between gas and electricity costs longer term.

With more than 90% of its gas storage full, France should have enough fuel to cope with a winter with average temperatures, Engie Executive Vice President Claire Waysand said on Monday. However, the situation could be tight during potential cold snaps, she added.

Reserves in the European Union were filled up to 79.4% of capacity as of 27 August compared with the target of 80% by 1 November, according to Gas Infrastructure Europe inventory data. Gazprom plans to halt supplies on the Nord Stream pipeline to Germany from 31 August for three days of planned maintenance.

Gazprom’s deliveries to Engie had already decreased “substantially” since the invasion of Ukraine, with recent monthly supply of about 1.5 terawatt-hours, the company based near Paris said. That compares with the group’s total annual supplies in Europe of above 400 terawatt-hours, it said.

The utility is holding talks with Algeria’s Sonatrach as part of its diversification strategy away from Russian supplies. Those new medium- and long-term contracts with the North African nation wouldn’t kick in this winter, Waysand said.

©2022 Bloomberg L.P.