Russia is about to shut down gas in Europe as Germany rejects claims it can’t fulfill the contract

Russian energy giant Gazprom says it cannot fulfill gas contracts with Europe.

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LONDON – The Russian energy giant is threatening to send less gas to Europe – but Germany, one of its main importers, has rejected the idea.

The majority state-owned Gazprom said on Monday that due to unforeseen circumstances, the company was unable to comply with gas contracts with Europe.

German energy company Uniper confirmed to CNBC that Gazprom has declared “force majeure” on their supplies. Force majeure, a legal term, occurs when force majeure circumstances prevent a party from performing its contractual obligations, in theory exempting them from penalties.

“It is true that we have received a letter from Gazprom Export, in which the company requests a retroactive force majeure event for past and present shortages in gas deliveries. We consider this to be zero. reasonable and has officially denied the force majeure claim,” Lucas Wintgens, a spokesperson for Uniper, told CNBC’s Annette Weisbach.

RWE, another German energy company, confirmed to CNBC that it has also received a force majeure notice from Gazprom.

Gazprom was not immediately available for comment when contacted by CNBC on Tuesday.

Officials in Germany and elsewhere in Europe are increasingly concerned about the possibility of a complete shutdown of gas supplies from Russia. These concerns increased after Nord Stream 1 – an important gas pipeline from Russia to Germany – was closed earlier this month for maintenance work, with some doubting that flows will be fully restored once the work is completed by July 21.

European nations received about 40% of their gas imports from Russia before the country invaded Ukraine. European officials have scramble to end this dependencebut it’s an expensive process and hard to achieve overnight.

The European Commission, the EU’s executive body, has announced new gas deal with the United States and Azerbaijan, for example, as it searches for new fossil fuel suppliers.

“This is clearly uncharted territory and unprecedented in its form,” Andreas Schroeder, head of energy analysis at research firm ICIS, told CNBC’s Squawk Box Europe on Tuesday.

“While the European Union has tried to reduce the volume of hydrocarbon imports in Russia, they have not managed to reduce the price they pay.”

European gas prices have been high due to reduced flows from Russia. But this higher price means Russia can send less gas to Europe and earn the same amount – or even more – than before. Schroeder calls this the “compensation effect”.

Gasoline price at the beginning of the month at the Dutch hub TTF, a European standard for natural gas trading, was about 1% higher at 159 euros ($1.02) per megawatt-hour on Tuesday morning. Prices have increased by more than 600% compared to last year.

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