Ørsted faces trouble fully severing ties with Russian suppliers

Denmark’s Ørsted A/S (CPH:ORSTED) has taken measures to cease cooperation with Russian companies but is unable to completely sever ties with local businesses due to a long-term gas supply contract with a subsidiary of state-owned PJSC Gazprom (MCX:GAZP).

The green power major said on Monday that it is no longer procuring biomass and coal for its power plants from Russia and does not have Russian companies among its direct suppliers for the renewables operations. Ørsted has also decided not to enter new business with Russian firms.

The Danish company noted that the decision will not affect its financial targets or its investment plans for 2022.

However, a take-or-pay contract, under which Ørsted has been sourcing gas from Gazprom Export since 2006, expires in 2030 and cannot be terminated at present. The contract, which provides for gas supplies of about 20 TWh per year, is part of the procurement strategy for Danish and Swedish business-to-business and wholesale customers and the gas that is not delivered to these customers is sold in Northwestern Europe.

The company stressed that Denmark, like other countries, depends on gas imports. To limit its financial exposure, Ørsted has reduced the hedging level for the contract with Gazprom Export and plans to donate all net profits after hedges and tax related to the contract to humanitarian aid in Ukraine.

Speaking to Reuters, Ørsted's chief executive Mads Nipper said that potential sanctions on Russian gas could enable the company to violate the contract with Gazprom and voiced support for such a decision.

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