Risk of Gazprom trading arm failing, upending markets

LONDON • The trading arm of Russia's gas giant Gazprom is under increasing pressure as clients and peers flee in response to the war in Ukraine, posing a risk for energy markets across Europe and Asia.

Gazprom Marketing and Trading, which has a unit in Singapore, is a huge trader of gas, liquefied natural gas (LNG) and power across Europe and Asia. It procures and trades wholesale energy from many sources, not just Russia.

The company is facing liquidity problems as banks delay its transactions and peers refuse to deal with it, according to a source familiar with the matter.

Little known to the general public, Gazprom Marketing and Trading has revenues almost on par with the trading arm of Centrica, Britain's top energy supplier.

If it goes out of business, it would bring down its British retail arm, a supplier to the National Health Service. The threat is so acute that the British government has made plans to nationalise the business, known as Gazprom Energy.

But Gazprom Marketing and Trading's failure would upend markets beyond its British domicile.

It holds billions of euros worth of hedges for Wingas, a sister company that is one of Germany's largest gas suppliers, said the sources. Losing these transactions would force the company, owned by Gazprom's German arm, to purchase energy for its clients at current high prices.

Gazprom Marketing and Trading also has units in Mexico, Switzerland, France and the United States, according to its website.

Gazprom Marketing and Trading Singapore accesses LNG for marketing across the Asia-Pacific region, improving the flexibility and value of the Russian LNG supplied from the Gazprom majority-controlled Sakhalin-2 project, its website says.

The backlash to Gazprom Marketing and Trading is happening even though it has not directly been hit by Western sanctions. Britain last week included Gazprombank - which processes some energy deals - in its list of banned entities. While European countries including Austria and Germany have opposed penalties on oil and gas, traders fear the trading unit could be next.

Gazprom Marketing and 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.

European energy markets have been extremely volatile, with gas prices surging as much as 79 per cent in just one day earlier this month. Chaos would worsen if the company - with revenues of £2.6 billion (S$4.7 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.

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