Further sanctions against Moscow could raise energy bills for UK businesses

Gazprom Energy, a subsidiary of Russia’s state owned gas and oil giant, accounts for about 20.8% of the UK business market

Last modified on Tue 22 Feb 2022 14.38 EST

Widening sanctions against Moscow could result in higher energy bills for a swathe of UK businesses if a key Russian-owned supplier is blacklisted, the UK’s energy trade body has confirmed.

Gazprom Energy, a subsidiary of Russia’s state owned gas and oil giant, has been one of the largest suppliers of gas for UK businesses since 2010, according to energy consultancy Cornwall Insight, which said the firm accounts for about 20.8% of the market.

While Downing Street has so far only imposed asset freezes on five Russian banks and three high net worth individuals as part of its retaliation over Moscow’s threat to Ukraine, the UK has given itself powers to extend those sanctions to target other key industries including the energy sector.

A larger package of UK sanctions against Moscow, which is being coordinated with the US and EU, will be implemented if a full-scale invasion of Ukraine takes place.

That could impact companies like Russia’s state-owned gas giant Gazprom and subsidiaries like Gazprom Energy, which provides gas and electricity to factories, businesses and public sector customers across the UK. According to its latest annual report, it supplied gas to 178,000 sites across the country in 2020.

A subsidiary of Gazprom’s marketing and trading arm, the gas it supplies to UK customers comes from “variety of sources and countries” including Norway and Qatar. The firm declined to confirm the proportion secured from Russia.

The UK’s energy trade body has warned that any further disruption to the supply during an existing crunch could spell trouble for customers.

“With both domestic and business customers already facing steep bill increases as a result of record gas prices on the wholesale market, further disruption to the market and supplies would be a big concern if it increases prices further,” a spokesperson for Energy UK said.

Unlike domestic energy users, there is no price cap for business customers across the UK. Companies have suffered rising bills following a global gas supply crunch that emerged as economies began to rebound after the Covid-19 slump.

Gazprom Energy first entered the UK market when it bought supplier Penine, which had just 600 customers at the time, in 2006. It did not confirm the number of UK business customers it currently serves, and declined to comment on the potential impact of UK sanctions.

The gas supplier employs about 290 people at its head office in Manchester, according to its website.

Its parent company is responsible for about 13% of global gas production.

Although a further escalation of tensions between Russia and the west would have a far more significant impact in mainland Europe – including Germany where Russian gas imports account for 40% of the supply – it could also indirectly push up prices on the wholesale market. Economists warn this is likely to have a knock-on impact for British firms and households.

Britain consumes about 74bn cubic metres of gas each year, or about 1,100 cubic metres per person, making it one of Europe’s heaviest consumers per capita. About half is imported, mostly from Norway which supplies a third of UK gas.

Russia was the fourth largest market for UK gas imports in 2021 according to official figures from the Office for National Statistics. Ranked after Norway, Qatar and the US, Britain bought almost £1bn of Russian gas, or about 4.9% of total UK imports.

Speaking last month as tensions mounted, Will Webster, energy policy manager for the industry lobby group Oil and Gas UK, said: “If the Russians reduce deliveries of gas to Europe, then it has to come from somewhere else, most likely as shipments of liquefied natural gas. That will increase competition for supplies, driving up prices and consumer bills even more. Conversely, any additional gas we produce ourselves will help alleviate this process.”

Jamie Maddock, an equity research analyst at investment management firm Quilter Cheviot said the impact of potential sanctions on the wider gas market would depend on the “severity and breadth of any sanctions beyond what’s already been announced, and then if it instils a response in Russia.”

“So far, the government’s sanctions are focused on certain oligarchs within Putin’s inner circle and various Russian banks,” he said. “There is little impact on energy companies, Gazprom included, though this could well change.”

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