UK's IOG dumps North Sea gas sale deal with Gazprom trading arm

UK-listed IOG -- which is developing a hub of gas fields in the Southern North Sea -- has dropped an agreement to sell gas from two of its fields to a trading arm of Russia's state-controlled Gazprom, it said late March 1.

The first phase of IOG's gas development will see gas produced from the Blythe, Southwark and Elgood fields, with the company targeting first gas this month.

IOG signed a sales deal with Gazprom Marketing & Trading (GM&T) -- a wholly-owned Gazprom subsidiary based on the UK -- for its equity production from Elgood and Southwark in July 2021 following a competitive offtake process involving more than 10 bidders.

The deal -- made via IOG's subsidiaries IOG North Sea Limited (IOGNSL) and IOG UK Ltd (IOGUKL) -- was due to run to October 2023.

"The company has, via IOGNSL and IOGUKL, served notices on GM&T with immediate effect," IOG said in a statement. "The Elgood and Southwark equity gas is now expected to be sold to an alternative buyer."

CEO Andrew Hockey added: "We had strong interest in rights to buy IOG gas during the competitive offtake process we ran last year and would expect to sell the gas to a highly credible alternative buyer."

IOG has a separate gas sales agreement in place with BP for Blythe gas, it said.

GM&T is based in London and has been involved in the UK gas market for over two decades.

IOG's move comes after UK utility Centrica said March 1 it was working to exit Russian gas supply agreements as a "matter of urgency."

Centrica has a medium-term contract with GM&T -- for the supply of gas sourced from a variety of suppliers -- that was due to run until 2025.

"We intend to exit our gas supply agreements with Russian counterparts, principally Gazprom, as a matter of urgency," CEO Chris O'Shea said. "We are working through the details of how best to do this -- additionally we will ensure we are compliant with all relevant sanctions."

Centrica signed a supply deal with GMT in 2012 for 2.4 Bcm/year of deliveries, but extended the contract and raised the volumes to be taken in 2015.

The extended deal with the higher volumes brought the total to an average of 4.16 Bcm/year, equivalent to an estimated 5% of UK gas demand.

UK government probe

The UK's business secretary, Kwasi Kwarteng, is also said to be looking at any ties between UK energy companies and Gazprom entities, including Gazprom Energy, which is a downstream supplier of energy to the non-domestic gas market.

A spokesperson from the UK Department for Business, Energy and Industrial Strategy (BEIS) declined further comment March 2.

The UK is much less dependent than most of Europe on Russian gas supplies, despite buying gas from GM&T and importing LNG from the Novatek-operated Yamal LNG plant in northern Russia.

In a factsheet published Feb. 25, BEIS said Russian imports made up less than 4% of total UK gas supply in 2021.

However, because the global gas market is increasingly interconnected, high prices in Europe due to curtailed Russian flows can also impact UK gas prices.

BEIS said Feb. 25 that the UK would do everything it could to mitigate the impact of high energy prices, adding it was "one of the reasons why the whole of western Europe must end its dependence on Russian oil and gas."

The TTF day-ahead price hit a record high of Eur182.78/MWh on Dec. 21, an increase of 985% year on year, according to Platts price assessments by S&P Global Commodity Insights.

Prices remain at sustained highs as Russia continues its military offensive against Ukraine, although Russian gas flows via Ukraine have not been impacted by the conflict.

The TTF day-ahead contract was priced March 1 at Eur122.20/MWh, up from Eur88.85/MWh the day before Russia's invasion of Ukraine.