ICIS EXPLAINS: Who ships ‘curtailed’ Russian gas to Austria?

LONDON (ICIS)–On November 15, OMV Gas Marketing and Trading said Russia’s Gazprom Export would cut supplies following a decision by the Austrian company to stop payments. 

Despite the announcement, gas continues to flow, sparking questions over what lies behind the supply cut announcement and new arrangement. 

In this brief Q&A, ICIS responds to questions based on information cross-checked with multiple sources in Ukraine, Slovakia and Austria.

1. Why did Gazprom Export cut contractual gas supplies to Austria’s OMV?

Under Russian legislation, exports of natural gas are subject to a 30% duty, in fact shouldered by European off-takers.

Sources familiar with Gazprom’s long-term EU contracts say the producer is prohibited from paying the levy itself.

This means that if an importer halts payments, Gazprom Export is obliged to stop supplies.

OMV Gas Marketing and Trading announced on 13 November that it would stop payments for Russian gas exports to recover €230m in compensation awarded by an arbitral tribunal.

The award is to cover non-delivered gas in 2022.

That resulted in Russia stopping delivering gas under the long-term contract with OMV.

2. Russian gas is still flowing to Austria. How come?

Although OMV said on November 15 that Gazprom Export would reduce gas deliveries to zero from the following day, flows transiting Ukraine and Slovakia and delivered into Austria have continued as normal.

Data published by regional grid operators indicate that gas is also exported on to neighboring Italy and the Czech Republic, although it is unclear whether the volumes are of Russian origin.

Data verified by ICIS with multiple Ukrainian, Slovak and Austrian sources show that Gazprom Export continues to transit the gas via Slovakia up to the Austrian border.

From there it is reportedly transferred to a western European counterparty which has a transport contract with transmission operator Gas Connect Austria.

This explains why there have only been minor changes in nominations on the Ukrainian-Slovak and Slovak-Austrian borders.

Considering the minor impact on flows and even price spreads, many market sources interviewed by ICIS have raised questions over whether this transfer had been pre-arranged.

Neither OMV nor Gazprom responded to questions from ICIS.

3. How long is this arrangement going to last?

Possibly until January 1, 2025 when Ukraine’s current transit agreement with Russia expires.

4. Are there other companies involved in this arrangement?

This is unlikely.

Slovak-importer SPP also has an import contract for Russian gas.

Sources in the country say most of the volumes are transited by Gazprom and offtaken by the buyer on the local virtual trading point, however.

5. Has anything changed in relation to the transit agreement in Ukraine and Slovakia?

No. Ukrainian sources confirm there were no changes in the transit and transfer arrangement.

Slovak sources close to grid-operator Eustream say Gazprom continues to hold long-term transmission capacity at the Velke Kapusany border point with Ukraine.

Gazprom’s booked entry capacity at Velke Kapusany amounts to 141,500,000 cubic meters (at 20°C).

Exit capacity at Baumgarten on the Slovak-Austrian border stands at 138,500,000.

Gazprom has booked transit capacity via Slovakia until 2028.

6. Following this latest transfer, has anything changed in OMV’s long-term import agreement with Gazprom?

Based on public statements, all we know for now is that OMV is no longer off-taking gas under its long-term agreement with Russia.

It is possible that following the arbitration award and OMV’s subsequent refusal to pay for supplies, Gazprom would not resume contractual deliveries under the terms of the agreement. This is due to expire in 2040.

Events could also lead to the renegotiation of the contract, with OMV likely looking to shorten the duration of the deal and reduce imports.

OMV is under pressure by the Austrian government as well as the EU to reduce its dependence on Russian gas and has taken steps to secure Norwegian pipeline gas and LNG.