Commodities giant Vitol SA is threatening to suspend gas deliveries to a German state-controlled energy business in a legal standoff that could cost the German company around €1 billion.
(Bloomberg) — Commodities giant Vitol SA is threatening to suspend gas deliveries to a German state-controlled energy business in a legal standoff that could cost the German company around €1 billion.
SEFE Marketing & Trading Ltd., a former Gazprom PJSC-trading arm, lost an urgent London court bid seeking to stop trading firm Vitol from cutting the gas supplies as soon as next week. Gas prices have surged since the contract was first signed, meaning the stakes for both sides are huge.
“I am not persuaded that the claimant has shown a seriously arguable case that a suspension will cause it significant short or medium term difficulties,” Judge Andrew Baker said in a ruling that was made public on Friday evening.
SEFE faces potential losses of around €1 billion ($987 million) if it needs to replace the lost gas at higher prices, two people familiar with the matter said.
“These contracts were entered into when market prices were significantly lower,” SEFE said in an emailed statement. The firm “strongly refutes the validity of the announced suspension and will continue to contest it through all available channels.”
A Vitol spokesperson declined to comment.
The potential losses mean extra financial pressure on the German taxpayer, which has propped up SEFE with an €11.8 billion credit line via German state-bank KfW Group. Vitol, one of the world’s largest commodity trading houses, made a record profit of $4.2 billion last year.
A court order shows the London-based SEFE unit asked the judge to prevent Vitol from taking action that threatened to “cause immediate and irreparably harmful consequences” as soon as Tuesday.
Vitol argued it has the right to terminate or suspend supplies because of SEFE’s change in ownership in April, according to two people familiar with the matter.
The judge said a trial could potentially take place in late February or March.
The SEFE parent company, Securing Energy for Europe GmbH, was known as Gazprom Germania GmbH, and was an arm of the Russian state’s energy empire. The firm was cut loose in April after European sanctions followed its invasion of Ukraine, which prompted the German government to step in to prevent a collapse that would have sent financial waves across the global energy markets and destabilized much of Germany’s industrial region.
The German regulator BNetzA, which has oversight over SEFE, didn’t comment on any figures and referred to ongoing legal proceedings. “This is about the security of supply in Europe,” a spokeswoman said.
After Russia cut gas flows to Europe, Vitol in a separate move applied to the German government for compensation for the gas it was owed by Russia, which would have been funded by a proposed German levy on consumers. The entire levy was stopped due to political and administrative hurdles before any payments were made.
–With assistance from Jack Farchy, Archie Hunter, William Mathis, Petra Sorge and Josefine Fokuhl.
(Updates with comments from court judgment in third and fourth paragraph)
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