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Gazprom's UK potential threat to enterprises in the UK and beyond

Biggest gas supplier to UK industry faces customer flight, eviction and potential de facto nationalisation

Security officers were out in force this week after rallies against the war in Ukraine at Gazprom Marketing & Trading. The Russian group's global trading branch is situated just a stone's throw from London's Regents Park.

Demonstrations, on the other hand, are the least of the company's concerns. Customers and suppliers are attempting to cut relations with any element of the Kremlin-controlled energy giant, and the company's landlord is attempting to evict it.

Officials in the United Kingdom are now working on rescue plans for both GM&T and its market-leading retail division, Gazprom Energy, amid fears that one or both could go bankrupt.

GM&T is a large gas, liquefied natural gas, and power trader, buying from Norway and the North Sea and selling globally. It also buys gas for Gazprom Energy, which supplies 30,000 commercial customers with about a fifth of all non-household gas in the UK.

Shops, bars, NHS trusts, and local authorities are among Gazprom Energy's clients, as are two-thirds of the UK's major energy consumers - sectors that generate everything from glass and ceramics to fertilisers, paper, and steel.

Business leaders and analysts fear that a collapse would result in instability in European gas markets, as well as unsustainable price increases for British consumers, many of whom had purchased gas in advance at lower rates several years ago and would see their bills skyrocket by a factor of ten.

The troubles of Gazprom have sparked issues about how the UK's business became so reliant on a Russian-owned gas company.

However, Jonathan Stern, a distinguished research fellow at the Oxford Institute for Energy Studies, sees it as a natural result of efforts to privatise and liberalise energy markets 40 years ago, first in the United Kingdom and then across Europe.

"We created this market model with as many companies as possible competing to supply gas and it couldn't be too surprising that Gazprom is one of the winners," he said.

Following the acquisition of Pennine Natural Gas in 2006, Gazprom Energy grew to become the largest gas provider to industry in the United Kingdom. With a total workforce of roughly 350 people, the company still has offices in Manchester and London.

GM&T has delivered profitable business for Gazprom in the past, despite being a modest fraction of the Russian state-owned energy giant's global operation. According to its annual filings, it paid over £1.3 billion in dividends to its immediate parent company, Gazprom Germania, between 2016 and 2020.

According to people close the company, GM&T cleared its trading positions with buyers and sellers last month, but there are questions about whether it will be able to meet next month's payment dealing.

The UK government has not placed sanctions on Gazprom's gas trading activities, while Germany is pushing back against limitations throughout Europe, where Russia provides over 40% of supplies.

The number of sanctions against the Russian company, on the other hand, is growing by the day. The United Kingdom banned Gazprom Bank, a payment conduit for Russia's oil and gas, on Thursday.

According to sources close to the corporation, any formal sanctions against GM&T or Gazprom Energy may bring the company down overnight.

According to the persons, GM&T is already at risk of a liquidity crisis as a result of counterparties refusing to trade with the company and banks processing payments more slowly, limiting cash flows.

Energy corporations such as Centrica in the United Kingdom, Eon in Germany, and Statkraft in Norway have all stated their intention to stop doing business with GM&T.

Customers of Gazprom Energy in the United Kingdom are having difficulty finding alternate gas supplies. Rivals are hesitant to take on new clients while prices remain at historical highs. Many businesses will have to pay penalties if they seek to cancel their Gazprom contracts early.

"reality for customers is that until the contracts run our the impact is likely to be severely negative," Stern added.

GM&T claims it is trying to sell Gazprom Energy, but the steep jump in wholesale gas prices has put a strain on many possible buyers' balance sheets. Gazprom Energy is also owned and hedged by GM&T, and any buyer may have to take them on.

Several competitors have already exited the business market. Scottish Power, which is controlled by Spanish utility company Iberdrola, said last week that it would no longer provide industrial and commercial customers.

"I'm not sure how anyone will be able to pay for it," one person contacted by Gazprom Energy stated.

That is also a problem for the UK government, which is considering placing Gazprom Energy under' special administration,' a de facto nationalisation in which the company would be maintained afloat with state help, at a cost of billions of pounds.

Nationalised enterprises are not allowed to buy supplies in advance or participate in hedging under Treasury policy. This already threatens to raise government spending for supporting Bulb, the household supply company that was placed into special administration last year.

"While the government taking over Gazprom Energy may make customers feel better, it would still be buying from GM&T or from somewhere else, which is difficult and expensive in the current market," Stern said.

According to a government official, the administration is still considering possibilities. GM&T did not respond to a request for comment.

However, a source close to the corporation indicated that the failure of Gazprom Energy or even GM&T would have little impact on Russian President Vladimir Putin's war machine.

"I bet there's some people close to Putin who are hoping sanctions will happen and factories and businesses will close across Europe".

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