Unique-Austria’s half-century bond with Gazprom ended by fuel seizure, sources say

By Alexandra Schwarz-Goerlich and Dmitry Zhdannikov

VIENNA/LONDON (Reuters) – The set off that ended greater than 50 years of fuel flows from Russian state vitality big Gazprom (MCX:GAZP) to OMV earlier this month was the Austrian group’s seizure of Russian fuel as fee to cowl the worth of an arbitration award, 5 sources instructed Reuters.

OMV was among the many few remaining patrons of Russian fuel in Europe after Gazprom misplaced nearly all its prospects there within the wake of Russia’s invasion of Ukraine in 2022. Earlier than the battle started, Russia was Europe’s single greatest provider of pure fuel.

On Nov. 13 OMV mentioned it had received an arbitration case in Germany in opposition to Gazprom for 230 million euros ($239 million) in reference to irregular provides to its German unit, and would take steps to instantly implement it in opposition to Gazprom’s invoices.

Three days later, Gazprom suspended fuel provides to the Austrian firm.

In response to three sources near Gazprom and OMV, the Austrian agency had impounded 230 million euros price of fuel deliveries for October. It was the primary time a European Union buyer had did not pay for Gazprom’s fuel, one of many sources near Gazprom mentioned.

A supply near OMV mentioned it noticed taking Gazprom’s fuel provides for October in lieu of the arbitration award because the final probability to take action if Ukraine, which plans to finish a deal permitting Russian fuel to transit its territory subsequent yr, stops Russian fuel flows in January.

Gazprom considers the fuel seizure as non-payment and therefore stopped provides, the supply near Gazprom mentioned.

OMV had been shopping for Soviet and Russian fuel since 1968, and the occasions signalled the Austrian agency is searching for methods to utterly exit Russian fuel purchases regardless of its contracts with Gazprom working till 2040, 4 of the 5 sources accustomed to Gazprom and OMV operations mentioned.

The stoppage of provides final week provides OMV a possibility to argue Gazprom has breached the contracts, one of many 5 sources mentioned.

Gazprom declined to touch upon future relations with OMV. An OMV spokeswoman mentioned Gazprom’s deliveries had stopped, and that it didn’t anticipate the state of affairs to alter.

OMV’s seizure of the fuel and ensuing non-payment for Russia’s October fuel provides haven’t beforehand been reported.

LONGSTANDING INFLUENCE

The abrupt finish to Gazprom and OMV’s relationship stunned many fuel market insiders, and is a blow to Gazprom’s longstanding financial and political affect in central Europe.

Austria had been certainly one of Gazprom’s most loyal prospects, remaining nearly absolutely reliant on Russian fuel whilst different EU members switched to imports from Norway, the U.S. and Qatar in 2022.

OMV’s contracts with Gazprom embody a take-or-pay clause, which states that it should pay for fuel provided even when it doesn’t take it.

In response to a second supply near Gazprom, Austria’s large fuel storage services have made it a stronghold for Gazprom in central Europe over the past twenty years. The supply added that Austria had saved billions on low-cost Russian fuel after the battle in Ukraine started.

Austria had been receiving Russian fuel at $300-$400 per 1,000 cubic metres when spot costs traded above $1,000 per 1,000 cubic metres on the peak of Russian provide cuts to Europe in 2022, the 2 sources near Gazprom mentioned.

OMV declined to touch upon costs. OMV CEO Alfred Stern (AS:PBHP) has mentioned Gazprom’s costs have been aligned with market costs.

Regardless of Gazprom reducing off OMV from provides, Austria has continued to obtain Russian fuel by way of Slovakia, a Reuters evaluate of regional fuel flows has proven.

Gazprom has offered extra fuel to Slovakia’s SPP because it stopped gross sales to OMV. SPP then resold fuel to Austrian patrons, three of the 5 sources mentioned.

The resales haven’t beforehand been reported. Gazprom and SPP declined to remark. OMV declined to say if it was shopping for fuel from Gazprom not directly by this association.

CUTTING RELIANCE

OMV’s Stern had been planning to chop reliance on Russian fuel after taking the position in 2021, mentioned one of many 5 sources.

Along with the motion over irregular provides in Germany, OMV has launched a number of different arbitration circumstances in opposition to Gazprom, having written down 2.46 billion euros price of Russian investments after Moscow seized stakes it held in a Siberian fuel area Yuzhno Russkoye.

Austria, whose authorities owns 31.5% of OMV, is politically impartial however helps sanctions in opposition to Russia.

Its chancellor Karl Nehammer was the primary Western chief to go to Russian President Vladimir Putin after the invasion. Final yr, its international minister Alexander Schallenberg mentioned a whole decoupling from Russia was illusory.

    Relations have turn into strained just lately, nevertheless. Austria’s Raiffeisen Financial institution, the largest Western financial institution in Russia, had its native Russian unit frozen by a Russian court docket in a separate row with magnate Oleg Deripaska. Raiffeisen has about 5 billion euros stranded in Russia.

On the day Gazprom lower fuel provides to OMV, Nehammer accused Moscow of utilizing vitality as a weapon.

Nehammer has remained in command of a caretaker authorities since a September normal election received by the Russia-friendly Freedom Celebration (FPO). However with round 29% of the vote, the FPO would have wanted a coalition associate to command a majority in parliament and type a authorities.

Since no potential coalition associate was forthcoming, Nehammer has been tasked with forming a authorities as a substitute and is negotiating with different events to type a brand new coalition that might exclude the FPO.

Austria’s vitality minister Leonore Gewessler mentioned it was as much as OMV to determine whether or not to exit from contracts with Gazprom.

“My activity, and that of the federal authorities, is to create the framework situations to make this exit doable,” she mentioned.

($1 = 0.9608 euros)