Germany's VNG applies for government stabilization measures over gas costs

Germany's VNG -- a subsidiary of utility EnBW -- said Sept. 9 it would apply for government support due to the high cost of purchasing replacement gas volumes.

VNG is Germany's third largest gas importer and storage operator, and it has been forced to buy replacement gas on the open market at high prices due to curtailments in Russian gas deliveries.

The situation has worsened since August, VNG said, as spot gas prices surged back to record highs.

Platts assessed the Dutch TTF month-ahead price at an all-time high of Eur319.98/MWh on Aug. 26, according to data from S&P Global Commodity Insights. It was last assessed on Sept. 8 at Eur216.03/MWh.

VNG -- which in 1973 was the first company to import Russian gas into Germany -- agreed in 2019 with Gazprom Export to buy up to 3.5 Bcm/year of Russian gas in 2021 and 2022 on top of its existing Russian supply contract.

The contract -- VNG's first direct purchase agreement with Gazprom Export -- was in addition to its existing Russian gas import deal for 6.5 Bcm/year with Gazprom's former Germany-based trading subsidiary WIEH, which is now owned by the German state under the SEFE umbrella.

VNG said it would submit its application Sept. 9 to the German economy ministry for stabilization measures under the Energy Security of Supply Act.

"The measures are directed at absorbing the currently accumulating significant losses from the replacement procurement of gas and at enabling business operations to continue," it said.

Ongoing talks between VNG with its shareholders and the German government on options for stabilization of the company continue in parallel, it said.

'System-relevant'

VNG said it was "system-relevant" for security of supply in Germany and structurally relevant for Saxony and eastern Germany, supplying gas to some 400 municipal utilities and industrial operators. Last year it met some 20% of Germany's gas requirements.

German utility Uniper made a similar request for stabilization aid in early-July due to the high cost of replacing lost Russian gas volumes, with the state taking a 30% stake in the company and offering significant financial support.

No Russian gas is currently flowing via the Nord Stream pipeline to Germany after Gazprom halted deliveries due to what it said were maintenance issues with gas turbines at the Portovaya compressor station.

Flows were first cut to 40% of capacity in June, before being reduced further to just 20% of capacity and then being halted completely on Aug. 31.

"Due to unfulfilled supply obligations by upstream suppliers, it has been and continues to be necessary to procure gas quantities at considerably higher prices on the energy markets," VNG said.

VNG said it needed to continue buying expensive gas "in order to maintain the ability to reliably supply VNG customers at significantly lower prices."

"These effects have worsened significantly since August, resulting in considerable losses at VNG," it said.

VNG said, however, that the specific impacts of the losses due to unfulfilled supply obligations -- and the impact that the stabilization measures would have as a consequence -- could not yet be "reliably" estimated.