Plight of ‘too big to fail’ Gazprom UK prompts industry alarm

Thousands of companies risk a cataclysmic spike in bills if ministers allow Gazprom’s UK energy supply business to go bust, industry leaders have warned.

Gazprom Marketing Trading Retail, which trades as Gazprom Energy and whose ultimate owner is the Russian state gas company, has put itself up for sale to protect itself from the political fallout from Moscow’s invasion of Ukraine.

The UK-based company, which has 30,000 corporate customers, has been under pressure in the past month as companies such as Siemens and McDonald’s say they are trying to withdraw from their contracts, while NHS trusts and local authorities are being encouraged to find new suppliers.

Despite the fast-track attempt to find a buyer, the UK government is on standby to put Gazprom Energy into “special administration”, a de facto nationalisation where it would be kept as a going concern with taxpayer support.

However, many of its customers are on contracts negotiated long before the wholesale price of energy began to surge last summer — meaning they still pay rates far below current market levels.

Companies say that if they were forced to cut their contracts short, they would struggle to find a new supplier willing to take on the risk at a time of unprecedented market volatility.

Even if they could find an alternative supplier, they would face an overnight surge in costs that could make them unviable, several told the Financial Times.

The Energy Intensive Users Group, which represents heavy industry, said Ofgem needed to “examine the risks of contagion” and determine whether Gazprom Energy was “too big to fail”.

It called on the government to provide a guarantee to underpin the existing energy supply contracts Gazprom Energy has with its members to allow them time to negotiate new deals if Gazprom were to fall into administration.

Government officials confirmed that in those circumstances the remaining customers would have to buy their energy at the “spot price” on any day rather than at the previously agreed level.

Joachim Gessner, director of global energy procurement at O-I Glass, the world’s biggest manufacturer of glass bottles and jars, said if Gazprom Energy were to be forced out of the market there could be huge consequences for UK and European industry.

“Keeping the gas flowing is one thing but it is equally, if not more important to keep gas flowing at the right price,” said Gessner, adding that “Gazprom Energy is too big to fail.”

“If the UK companies lost their hedges with Gazprom Energy it would likely cost them a double-digit billion pound amount as a result of being suddenly exposed to significantly elevated prevailing market prices.”

Unlike household customers there is no obligation on suppliers to provide energy and businesses’ credit balances are not usually protected if their supplier goes bust.

Gazprom Energy’s situation poses a political problem for prime minister Boris Johnson given that ministers have so far resisted calls from heavy industry for financial help to deal with soaring energy bills.

The government announced in October that it was open to providing assistance to “energy-intensive industries” hurt by the spike in wholesale gas prices but companies have so far been left empty-handed.

With chancellor Rishi Sunak delivering his spring statement on Wednesday, business groups hope he will finally provide assistance with their bills.

The Department for Business, Energy and Industrial Strategy 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 at the moment,” it said.

Ofgem did not immediately respond to a request for comment. Gazprom Energy declined to comment.

Source: Financial Times