(Bloomberg) – As calls grow for the UK to cut off Russian businesses following the invasion of Ukraine, few realize how costly it could prove for thousands of businesses as well as for schools, libraries and parts of the National Health Service that depend on Gazprom Energy for their gas.
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The retail brand of Gazprom Marketing & Trading Ltd., a subsidiary of Russia’s state-owned Gazprom PJSC, is one of the country’s largest gas suppliers, supplying more than a fifth of commercial gas volume from the United Kingdom. If its retail contracts collapse, buyers could face huge price increases.
The gas would not automatically be cut off, but the regulator would direct buyers to other suppliers with much higher prices. Trade contracts generally maintain a stable price throughout their term.
This means that, unlike much of the solidarity with Ukraine heard around the world which has few direct costs, removing Gazprom’s retail brand would have real consequences for businesses and public entities.
“A failure the size of Gazprom would put significant pressure on the Treasury and ministers will need a clear short-term exit plan,” said Darren Jones, an opposition Labor MP who chairs the committee. business parliamentarian. “The Secretary of State must ensure that his energy security review includes industrial and commercial customers, as well as residential customers.”
The commercial arm of the company has been shunned by longtime partners and is driven out by its London owner because of Russia’s war in Ukraine. If Gazprom is unable to trade in the UK market or if customers boycott their retail business, it threatens to force companies to go through what regulator Ofgem calls the supplier of last resort.
Gazprom M&T did not respond to a request for comment. The company has made no public indication that it will be unable to serve business customers.
“Nothing has changed with respect to Gazprom Energy’s ability to supply its customers and we continue to honor our contractual obligations to our customers with the same level of commitment as usual,” the company said in a statement released. on its website. “We source gas through commodity exchanges in exactly the same way as our competitors, and we are not dependent on gas supplies from Russia.”
Read: The Russian gas giant shunned by European traders and owners
Gazprom Energy supplies 21% of non-domestic gas volume in the UK and has more than 100,000 metering points, according to its website, and had contracts worth 23 million pounds ($30 million) with the NHS last year, according to public sector data platform Tussell. The volume of gas delivered by the supplier is roughly equivalent to the combined gas and electricity supplied by the retail arm of Centrica Plc and Bulb Energy Ltd., according to company data.
The supplier’s ultimate parent company, the world’s biggest gas exporter and Russia’s biggest company, still supplies large volumes of gas to European utilities through pipelines, which are sold in the UK.
“If the London-based trading arm of Gazprom were to fail, we would likely see immediate problems in its retail business,” said Tony Jordan, energy sector consultant at Auxilione. “This could expose professional clients to the current record highs in the market.”
Companies tend to sign long-term contracts with fixed prices. If their supplier goes bankrupt and goes through Ofgem’s process, they face the volatility of today’s market. With wholesale prices hitting record highs on Friday, many companies may not be able to absorb this financial hit.
Already this week, three local councils, in Suffolk, Shropshire and London, announced that they would reduce their gas supply contract with Gazprom Energy. There is not yet a legal requirement for any unit of Gazprom to cease operations in the UK, but companies linked to the Russian state will already be unable to issue debt or equity in the country at the result of sanctions.
(Updates with opposition legislator’s comment to fifth paragraph)
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