Gazprom says it will halt gas supplies to France's Engie, cites lack of payment

By Mimosa Spencer and Elizabeth Pineau

PARIS (Reuters) -Russia's Gazprom said on Tuesday it would fully suspend gas deliveries to major European utility Engie from Thursday in a dispute over contracts, a move which will deepen concerns about Europe's winter energy supply.

Europe is already on notice that Gazprom will shut off the Nord Stream 1 gas pipeline to Germany from Aug. 31 to Sept. 2 for maintenance, and there is some concern that Moscow, which has cut the pipeline's supply to just 20% of capacity, may step up pressure by delaying the restart.

In a statement, Gazprom said Engie had not paid in full for July deliveries of gas.

"In this regard, Gazprom Export notified Engie of the complete suspension of gas supplies starting from Sept. 1, 2022, until the moment it receives full payment for the gas it has supplied," it said.

Engie, which holds a 9% stake in Nord Stream, declined to comment. It had earlier said Gazprom supplies would be further squeezed but gave no details.

Gazprom's deliveries to Engie had already dropped substantially since Russia invaded Ukraine and Finance Minister Bruno Le Maire warned that "a drastic cut" risked jeopardising France's forecast of 2.5% GDP growth this year.

"Very clearly Russia is using gas as a weapon of war and we must prepare for the worst case scenario of a complete interruption of supplies," France's Energy Transition Minister Agnes Pannier-Runacher told France Inter radio.

Gazprom is not respecting its contracts, an aide to Pannier-Runacher told Reuters, adding that France has diversified its energy supplies and the latest cuts will not compromise its winter gas supply.

Russia now accounts for less than 4% of Engie's gas imports compared with 17% before the war in Ukraine, an Engie spokesperson said. Supply in recent months from Russia had fallen to just 1.5 terawatt-hours (TWh), the utility said.

Engie declined to say to what levels volumes would now fall.

France is not as dependent on Russian gas as some of its European peers. Before the war in Ukraine, Norway supplied more than a third of France's gas, with the Netherlands, Algeria and Qatar also delivering smaller volumes, government data showed.

WINTER STORAGE

Government spokesman Olivier Veran reaffirmed France would fill its gas reserves by the end of the summer.

"We're ahead of schedule," he told franceinfo radio. The government says reserves are now about 90% full.

The French 2023 baseload power price fell sharply in a bout of profit-taking after record highs on Monday, but at 730 euros per Megawatt-hour (MWh), it remained 10 times higher than during the same period in 2021, reflecting deep uncertainty over energy supplies.

Engie said it had taken action to protect itself and honour its commitments to customers.

Russia's disruption and reduction in supply has sent gas prices soaring and forced European governments to scramble for alternative supply ahead of the winter.

In France, the problem is exacerbated by outages in the nuclear sector where output is at a 30-year low. Nuclear accounts for some 70% of its power production.

Prime Minister Elisabeth Borne on Monday urged French companies to draft energy savings plans by next month, warning they would be hit first if France is forced to ration supply of gas and electricity.

Engie confirmed on Monday that it was in talks with Algeria's Sonatrach to increase gas imports from the North African country in the medium term.

(Reporting by Dominique Vidalon, Mimosa Spencer, Elizabeth Pineau and Leigh Thomas in Paris; additional reporting by Vladimir Soldatkin in Moscow and David Ljunggren in Ottawa; writing by Richard Lough; editing by Benoit Van Overstraeten, Jason Neely, Bernadette Baum, Jonathan Oatis and Richard Chang)