The trading arm of Russia’s gas giant Gazprom PJSC is under increasing pressure as clients and peers flee in response to the war in Ukraine, posing a risk for energy markets from the UK to Germany and Singapore.
Gazprom Marketing & Trading is facing liquidity problems as banks delay its transactions and peers refuse to deal with it, according to people familiar with the matter. But its failure would upend markets beyond its UK domicile: the firm is one of Europe’s top gas and power traders, has units in Asia and North America, and traded more than 100 liquefied natural gas cargoes in 2020.
Little known to the general public, Gazprom Marketing & Trading has revenues almost on par with the trading arm of Centrica Plc, the UK’s top energy supplier. If it goes out of business, it would bring down its UK retail arm, a supplier to the National Health Service. The threat is so acute that the government made plans to nationalize the business, known as Gazprom Energy.
A unit in Germany is also at risk. The trading arm holds billions of euros worth of hedges for Wingas GmbH, a sister company that’s one of Germany’s largest gas suppliers, said the people, who asked not to be identified because the information is private. Losing these transactions would force the Kassel-based company, owned by Gazprom’s German arm, to purchase energy for its clients at current high prices.
The backlash to Gazprom Marketing & Trading is happening even though the company hasn’t directly been hit by Western sanctions. The UK this week included Gazprombank -- which processes some energy deals -- in its list of banned entities. While European countries including Austria and Germany have so far opposed penalties on oil and gas, traders fear the trading unit could be next.
Gazprom Marketing & Trading said it sources gas “in the European wholesale markets in exactly the same way as other market participants, and since the first quarter of 2021 we have not received gas under long-term contracts with Russia.” Wingas declined to comment.
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European energy markets have been extremely volatile, with gas prices surging as much as 79% in just one day earlier this month. Chaos would worsen if the company -- with revenues of £2.6 billion ($4.65 billion) in 2020 -- fails, potentially defaulting on deals and forcing customers to step into the market to buy gas and electricity at prices several times higher than normal.
The LNG market would also feel the pinch. Gazprom Marketing & Trading has a subsidiary dedicated to trading the super-chilled fuel. In 2020, that unit had an international portfolio of supply and purchase deals including accords to take cargoes from the Sakhalin Energy plant in Russia’s far east and Yamal LNG in the country’s Arctic. It is also the sole marketer of product from a floating liquefaction plant in Cameroon.
The LNG business traded 113 cargoes in 2020. For comparison, German utility giant Uniper SE handled 225 loads in the same period.
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Gazprom Marketing & Trading also has units in Mexico, Switzerland, France, the US and Singapore, according to data on its website.
Europe is laying out urgent plans to cut its reliance on Russian oil and gas as quickly as possible, no easy feat for a continent that has spent decades developing a heavy energy dependence on Moscow. Many companies, including giants like Shell Plc and BP Plc, are also “self sanctioning” by choosing not to sign new contracts for Russian supplies.
Only a few of Europe’s largest companies are still doing business with Gazprom Marketing & Trading in the over-the-counter market. Banks are taking at times more than a week to process its trades, which could drive clients and trading partners away because it takes too long to get deals through. The company, which has more than 300 employees, is even being kicked out of its London offices by the landlord, British Land Co.
