The government is drawing up contingency plans for the potential collapse of Gazprom’s London-based global energy trading business, amid fears it could cause chaos across gas and power markets.
Officials believe that Gazprom Marketing & Trading could be at risk as lenders shun dealing with the business because of concerns over sanctions and reputational risk, even though it has yet to be formally sanctioned. Its ultimate parent company is Gazprom, whose biggest shareholder is the Kremlin.
Gazprom Marketing & Trading is a huge trader of products including gas, liquefied natural gas and power across Europe and Asia, with net income of £544 million in 2020. It procures and trades wholesale energy from numerous sources, not just Russia. UK household suppliers including Centrica, Scottish Power and Ecotricity, all buy a portion of their gas from the company.
Gazprom Marketing & Trading also owns and procures wholesale energy for one of the UK’s biggest business suppliers, Gazprom Marketing & Trading Retail, which trades as Gazprom Energy and retails about a fifth of non-domestic gas in the UK.
It emerged this week that the government was preparing to step in and run Gazprom Energy through the taxpayer-funded special administration regime should it collapse.
Officials believe the likely trigger for a collapse would be the failure of Gazprom Marketing & Trading, if it is unable to access sufficient credit to fund its trading. That would threaten huge disruption in markets across the UK and Europe, leaving any suppliers with contracts to buy energy from it scrambling to find replacements, most likely at a premium given high wholesale prices. One industry source said a collapse would have a “material adverse impact” on the market.
Gazprom Marketing & Trading did not respond to a request for comment yesterday. In a statement on its website, Gazprom Energy said: “We are in constant contact with the relevant regulators and are unaware of any decision taken to place Gazprom Energy under government control.”
The potential collapse of Gazprom Energy threatens to lead to big jumps in prices paid by its thousands of business customers as well as hospitals and councils. If the supplier is placed into the taxpayer-funded special administration regime, administrators are likely to need to procure wholesale energy afresh at today’s high prices.
Officials are understood to be exploring whether gas contracts procured for Gazprom Energy from third parties through Gazprom Marketing & Trading could be transferred to the administrators if the companies collapse.
Businesses have been rushing to cut ties with Gazprom following Russia’s the invasion of Ukraine. However, many have found difficulties in doing so because they are locked into long-term contracts and the alternatives are much more expensive.
Centrica is still seeking to exit its contract to buy gas from Gazprom Marketing & Trading, which is due to continue until 2025, while Ecotricity has said it will keep buying gas from the company this year to avoid incurring exit penalties and enabling Gazprom to resell the gas for a higher price.
Businesses and councils have also been scrambling to exit their contracts, although they face difficulties securing competitive prices elsewhere. A customer exodus is not in itself expected to trigger the demise of the supply business, however, since Gazprom Energy could resell the energy it has procured for its customers at today’s high prices.
A government spokesman said: “Gazprom’s retail business continues to trade in the UK and customers should exercise their own commercial judgment with regards to energy supply contracts they have in place.”