ICIS VIEW: Uniper arbitration award could shape future EU gas supplies

• Germany’s Uniper announces €13bn award in arbitration claim against Gazprom Export
• Recovering the award will likely determine gas supply dynamics in Europe in the longer-term
• Uniper may set precedent for other companies involved in similar arbitration claims

LONDON (ICIS)–Uniper’s announcement it was awarded more than €13 billion in damages for non-supplied Russian gas volumes since mid-2022 raises complex questions.

Given the sheer size of the award and the estimated 25 billion cubic meters that Uniper imported annually from Russia before Gazprom Export curtailed them, there is no doubt that the steps taken by Uniper to recover the award could impact future gas supplies to Europe at least in the mid term.

The award made on 7 June came nearly three weeks after Austria’s OMV Gas Marketing and Trading, which has a long-term supply contract with Gazprom Export, said it had received a notice from an unnamed European company seeking to seize payments due to the Russian producer as part of a court ruling.

It is unknown whether OGMT received the notice from Uniper or, whether in the light of the latest arbitration award, the German state-owned company would indeed seek to seize OGMT’s payments to Gazprom Export.

Considering that Gazprom experiences financial difficulties, reporting its biggest losses in the last 20 years and that relations between Russia and western countries, including Germany, are frozen following Russia’s full-scale invasion of Ukraine, it is highly unlikely that Gazprom Export would pay the financial value of the award.

FALLING PRODUCTION

Nevertheless, Gazprom’s production has reportedly fallen to an all-time low in 2023, after it lost its European market share, cutting supplies to consumers such as Uniper in the wake of the invasion of Ukraine in 2022.

This makes it mindful of the fact that low production could lead to shut-ins with irreversible damage to gas wells.

The alternative for Uniper and Gazprom, therefore, might be to settle for an option where Gazprom would keep its production going while Uniper would receive the equivalent of the award’s financial value in natural gas deliveries.

The issue may in fact gather momentum as various European stakeholders are now considering the possibility of continuing the transit of gas through Ukraine once the existing agreement expires on 1 January 2025.

It may not be mere coincidence that just hours before Uniper announced the arbitration award, the German economy minister Robert Habeck said Europe was engaged in ‘intense’ work to keep gas flowing via Ukraine.

TRANSIT

Ukrainian officials have repeatedly insisted the country would not renew or sign a new contract, although there had been hints in recent months that individual European companies could be allowed to book capacity at the Ukrainian-Russian border.

Nevertheless, Ukraine is not the only option that Uniper may have to import gas in lieu for its arbitration award.

The company established a subsidiary in Turkey – Uniper Enerji – exactly a year ago and more recently increased its capital to Turkish lira 77 million (€2m).

The sum may be small, but by increasing it from an initial TL53 million, the company is preparing itself to show it has sufficient funds to receive a licence from the Turkish regulator EPDK to import, export and trade gas.

By positioning itself to import gas via Ukraine and Turkey would not necessarily mean Uniper would be able to use the physical molecules in Germany, considering the distance and high transmission cost.

Imported volumes could be sold in southern and eastern Europe at highly discounted prices.

Many companies active in this region had a bumper year in 2023, as they reportedly imported gas sourced in Turkey and potentially of Russian origin at heavily reduced prices and sold them at a premium on central European hubs.

GERMAN LNG IMPORTS

For gas supplies to Germany, Uniper may now find itself freer to turn to the LNG market to secure long-term volumes to meet its customers’ needs.

For as long as the prospect of a resumption of Russian pipeline volumes that it is contractually obliged to take – or pay for – was on the horizon, the company would have feared being committed to too many long-term take-or-pay commitments.

With this prospect having been removed, Uniper is theoretically free to sign new LNG import contracts to replace Russian pipeline volumes that should have run until the 2030s.

Germany certainly has the capacity to facilitate this: in the aftermath of Russia’s invasion of Ukraine, the country rushed to secure LNG import infrastructure and now has four LNG import points – at Mukran, Brunsbuettel, Stade and Wilhelmshaven deploying up to six floating storage and regasification units (FSRUs).

Yet, while Uniper’s German peers signed LNG contracts immediately after the crisis hit, Uniper was somewhat less bullish.

OTHER BUYERS

In May 2022, EnBW signed deals with Venture Global for a total of 1.9 million tonne per annum (mtpa) of US Gulf LNG, followed in 2024 with a further deal for 0.6mtp, with Abu Dhabi’s ADNOC. Also in Germany, RWE ended 2022 with the signing of a 2.25mtpa contract with US supplier Sempra.

France’s ENGIE, another offtaker of Russian gas, meanwhile in 2022 locked down 1.75mtpa of LNG from US supplier NextDecade’s Rio Grande project. In Italy, ENI secured a beefed-up deal for Algerian pipeline gas.

To date since the crisis hit, Uniper has locked down just 0.8mtpa of new long-term contractual LNG, for flexible volumes from the portfolio of Australia’s Woodside. The door may now be open for further long-term commitments to be signed.

Uniper’s next actions will no doubt impact supply flows to Europe and potentially set a precedent for future steps by companies which have ongoing arbitration claims against Gazprom Export.

By Aura Sabadus and ICIS analyst Rob Songer