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Russia nears gas shutdown in Europe as Germany rejects claims it can’t fulfil contracts

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Russia’s energy giant Gazprom has said it cannot fulfil its gas contracts with Europe.

Bloomberg | Bloomberg | Getty Images

LONDON — Russia’s energy giant is threatening to send less gas to Europe — but Germany, one of its main importers, has rejected the idea.

Majority state-owned Gazprom said Monday that due to unforeseeable circumstances it is not in a position to comply with gas contracts with Europe.

Germany’s energy firm Uniper confirmed to CNBC that Gazprom had claimed “force majeure” on its supplies. Force majeure, a legal term, occurs when unforeseeable circumstances prevent one party from fulfilling its contractual duties, in theory absolving them from penalties.

“It is true that we have received a letter from Gazprom Export in which the company claims force majeure retroactively for past and current shortfalls in gas deliveries. We consider this as unjustified and have formally rejected the force majeure claim,” Lucas Wintgens, spokesperson for Uniper, told CNBC’s Annette Weisbach.

RWE, another German energy company, confirmed to CNBC that it had also received a force majeure notice from Gazprom.

Gazprom was not immediately available for comment when contacted by CNBC Tuesday.

Officials in Germany and elsewhere in Europe have become increasingly concerned about the possibility of a complete shutdown in gas supplies from Russia. These fears intensified after Nord Stream 1 — a key gas pipeline from Russia to Germany — was closed earlier this month for maintenance work, with some doubting that flows will be fully restored after works are concluded on July 21.

European nations received about 40% of their gas imports from Russia before it invaded Ukraine. European officials have been scrambling to end this dependency, but it’s a costly process and hard to achieve overnight.

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The European Commission, the executive arm of the EU, has announced new gas deals with the United States and Azerbaijan, for instance, as it seeks new suppliers of fossil fuels.

“This is clearly uncharted territory and unprecedented in this form,” Andreas Schroeder, head of energy analytics at research company ICIS, told CNBC’s Squawk Box Europe Tuesday.

“Whilst the European Union has managed in reducing the volumes of imports of hydrocarbons in Russia, they didn’t manage to reduce the price they pay.”

European gas prices have soared as a result of lower flows from Russia. But these higher prices mean that Russia can send less gas to Europe and make the same — or even more — money than before. Schroeder called this the “offsetting effect.”

The front-month gas price at the Dutch TTF hub, a European benchmark for natural gas trading, was around 1% higher at 159 euros ($1.02) per megawatt-hour Tuesday morning. Prices are up more 600% over the last year.

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