Mr Wendland, a valued visitor to C@W and expert on all things nuclear, drew our attention to a slew of Gazprom news items (11th comment on that post) and sought my views. Here we go then, starting with a collage of quotes.
1. Gazprom defaulting, just as it gets cold ?
Gas supplies from Gazprom "have been reduced to Poland, Slovakia, Austria, Hungary, Bulgaria, Romania, Greece and Italy, [an] EC spokeswoman told reporters" ... "Deliveries were 20 percent lower than what Russia was supposed to deliver under long-term contracts" said French importer GdF. "Gazprom isn’t currently able to meet the additional gas volumes requested by our partners in western Europe" said a Gazprom spokesman. "The state-run company reduced deliveries to Europe by 10 percent for several days because of cold weather and is now fully delivering contracted volumes" a Russian news agency reported ... "Gazprom's main priority is to supply gas to the domestic market", Russian Prime Minister Vladimir Putin said.
No-one disagrees that Gazprom is delivering less than requested by European buyers. Now, under the big gas purchase contracts, buyers can ask for amounts in excess of contractual obligations on a 'reasonable endeavours' basis: ultra-cold weather at home would be enough to excuse the supplier from meeting such requests. But the GdF comment (lower than supposed to deliver) suggests it has been worse than that; and "is now fully delivering" from a Russian source suggests that at least for a while they were indeed in default, and that this is now rectified.
Russia has historically bust a gut to maintain its well-deserved reputation for reliability as a supplier to (hard currency) buyers, except when needing to teach the Ukraine a lesson. I'd guess the reasonable endeavours requests are going unmet, though. We'll return to the truculent Putin later.
2. What are the consequences ?
As regards European gas users, it will probably be OK. Natural-gas storage facilities across the EU are full and the situation doesn’t qualify as a “state of emergency” because the affected countries have been able to use natural gas from elsewhere (EC spokeswoman).
This happy situation exists because prior to the cold snap we have been awash with gas for at least 3 years now ! (LNG, shale, recession)
For Gazprom, to the extent they have 'under-delivered' (to use the industry euphemism) against firm contractual obligations, there will in due course be a penalty, which can take several forms including a proportionate reduction to the minimum annual contractual bill, and some scale of liquidated damages which will be deducted from the monthly invoice amount. They may counter-claim force majeure on some or all of these penalties, which will lead to an interminable dispute, probably to be settled in the same smoke-filled rooms where lengthy price re-negotiations are already in progress (see 'awash with gas' above) under the daft contractual 're-opener clauses' that Civil Code countries go in for.
3. Gazprom gas for China ?
Gazprom expects a “renewed proposal” from China soon, after failing to sign a contract last year. “We are waiting for a renewed proposal from our Chinese partners, which we feel will be in the nearest future,” Pavel Oderov, head of Gazprom’s department for foreign business, said today. Most commercial terms, except price, have been agreed on ...
Another long-running saga. China certainly aspires to use more gas - but not at any price. In round one, the Russians insisted they bought gas in a package together with Russian manufactured goods, 50:50 by value. The Chinese, naturally enough, told them they could stuff their useless trucks, which caused a bit of a setback. The package idea has been dropped: but Gazprom still insists the gas be priced on an oil-indexed basis, an historical practice now utterly discredited (see 'awash with gas' ...), given that there are satisfactory gas price indices now available.
Mr Oderov's hopes and feelings may not be fully gratified.
4. What's with Putin ?
The usual - he enjoys sounding off. Here's another of his encouraging cold-weather comments.
"Today it wouldn’t be out of place to recall the people who hampered our construction of Nord Stream [pipeline]. If they hadn’t interfered, there would already be a second branch and it would be loaded."
This is the merest knock-about debating stuff. He really does enjoy himself, though - have a read of this performance last year, on shale gas and much else.
What a card. His re-election is assured. One way or the other.