Energy Market Update | Gazprom set for special administration | 24/03/2022

The UK energy market continues to battle against unprecedented volatility and headwinds amidst the Ukraine/Russia conflict, supply issues and governmental desires to drastically modify the country’s generation mix.

Gazprom facing special administration

Russian state-owned energy provider Gazprom was sanctioned by the UK government following the  invasion of Ukraine.

Whilst the UK arm of the business is not tied to Russia and does not sell gas solely from the country, it has been dealt a number of blows since the sanctions landed.

This includes other suppliers no longer trading with Gazprom and high-profile business customers publicly severing ties and seeking contract terminations.

Public bodies such as the NHS and councils are amongst those who have publicly called to be released from their contracts.

With Gazprom Marketing and Trading Ltd nearing an inability to trade, alarm bells are ringing with roughly 20 per cent of the UK’s business market supplied through the firm.

With such an influence over business continuity across the country, the government are now stepping in to decide the best course of action to protect Gazprom customers.

Gazprom customers: what happens next?

Ofgem and Gazprom have thus far not released any comment on the situation or suggested next steps.  There are a number of possible scenarios with regards to what happens next, each of which will have different ramifications for its business customers.

Special Administration:

This involves the UK government temporarily taking control of the business to ensure continuation of services.  This will be done until a sale of the business can be brokered, which Gazprom have not yet been able to do.  For customers, this will not affect their deals either live or non-live.

The government may have to make decisions about offering future deals to businesses or whether to simply honour existing contracts.  The government is currently carrying this out in the residential market with Bulb.

Supplier of last resort:

This is the tactic Ofgem were employing in the second half of 2021 when many smaller suppliers became insolvent and went out of business.  Customers (and businesses) were moved to a nominated “supplier of last resort (SOLR)” and their contracts were honoured in some cases and renegotiated in others.

This would be a devastating disappointment to businesses if it happened with Gazprom. There is no way a supplier could provide energy based on old rates in today’s climate and businesses would need to renegotiate their contract in a market roughly four times higher than it was 12 months ago.  This would negate much of the good work and forward planning firms will have done to lock in long-term contracts.

How should my business prepare?

Due to the massive negative impact a sudden loss of historic contracts would have on 20 per cent of UK businesses, it is likely that the government will step in to protect existing contracts.

With this in mind, we recommend businesses with Gazprom supplies take the following three steps:

    1. Set up alerts to keep tabs on the situation with Gazprom. Use a Google alert to get an email whenever an article is released about Gazprom so you can act immediately if required and update your energy strategy.
    2. If the government places Gazprom in special administration, meet with your relevant stakeholders internally to discuss your long-term energy procurement. When does your deal end and what do you hope to do at that point?  Speak to an expert to decide the best course of action based on when you’ll need to engage with the volatile market.  Advanced procurement is a valuable tactic at present.
    3. If your contract does end up being cancelled, you need to be sure that the new deal you move onto is the best possible. Engage an expert to discuss your options and advise you on rates/beneficial contract lengths.  We do believe that this is an unlikely scenario, but should form part of your planning.

Speak to us

We offer free, no-obligation support for businesses of all sizes.  If you are concerned about your energy prices, or want to mitigate 2022 increases through savings elsewhere, such as water costs, speak to GAS today.

Sign up to our NewsletterStay up to date with the latest industry news and offers.

Share this post

Paul JohnsonGroup Financial Director

About Paul

Paul Johnson is very much a home-grown talent.

He joined Great Annual Savings Group in its infancy, fresh from a youth career as a professional footballer with Hartlepool United.  He quickly established a reputation within the business and aced all required accountancy qualifications in the space of four years to become the Group’s Management Accountant.

Several successful projects later, Paul was promoted to Head of Finance.  When the former FD left GAS, he took on the mantle of the business’ most senior finance professional; boasting a string of incredible achievements all under the age of 30.