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Tuesday, May 21, 2024 | Back issues
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Danish energy giant takes heat for long-term contract with Russia’s Gazprom

Danes wonder how their world-leading sustainable energy producer Ørsted remains locked in a deal to buy large amounts of natural gas despite sanctions meant to cripple Russia for its invasion of Ukraine.

COPENHAGEN, Denmark (CN) — In the wake of the Russian invasion of Ukraine, all Danish companies dealing with Russia have been in the public spotlight. Perhaps no one more than the country’s largest energy company Ørsted A/S, which has the Danish government as its main stakeholder.

Ørsted employs nearly 7,000 people and produces sustainable energy through onshore and offshore windmill parks, bioenergy, solar cells and more. Yet, the company also imports up to 20 trillion watts annually from the Russian company Gazprom Export — a company of great economic importance for Russian President Vladimir Putin, who has been able to extend gas pipes to the European member states despite the 2014 annexation of Crimea.

Ørsted — formerly Dong Energy — signed its current contract with Gazprom in 2006, and the agreement runs until 2030. In a recent interview with the Danish newspaper Berlingske, Ørsted CEO Mads Nipper said he would tear up the agreement if he could.

Should Ørsted choose to end its deal with Gazprom before 2030, it could be on the hook for of tens of billions — prospect that would ruin Ørsted and force the company to buy gas from other suppliers trading with Gazprom anyway, Nipper claimed.

He passed the ball to government authorities by referring to a need for collective macro-efforts to shut down energy and money flows to Russia.

“We believe that interrupting a very large part of all the gas that flows to Denmark is such a big social decision that it can neither be nor should be made by a commercial company," he said.

But Danish finance ministers were quick to dodge responsibility. Minister Nicolai Wammen issued a brief statement saying that even though the Danish government owns 50.1% of Ørsted, it is not involved in the “daily management” of the company due to the arm’s-length principle.

Marie Münster, professor in energy system analysis at the Technical University of Denmark, estimates that natural gas makes up a very small part of Ørsted´s business currently. But she noted if Ørsted refuses to honor the contract it will keep paying even as Gazprom sells the energy Ørsted would have taken elsewhere and earns double profit.  

“The agreement was made a long time ago, and it is hardly part of Ørsted’s strategy now. But unless a special law is adopted at national or EU level, they have no choice given the rules of long-term contracts. Their only option is to refrain from signing a new one and only import the minimum,” Münster said.

Ørsted’s dilemma reflects that of other Danish companies conducting business on Russian territory. Big production companies such as the brewery Carlsberg and Rockwool, which makes isolation materials, have announced that they keep their staff in production while putting a hold on all new investments. But financial experts have criticized the move, arguing trade with Russia is now foreign policy and refusing to shut down operations in Russia clashes with EU efforts to cripple Russia with sanctions.

Currently, Russia delivers 40% of EU’s natural gas. Denmark only gets around 15% of its total energy from natural gas, and other sources can supply the national grid over the coming years, Münster said.

“Approximately a quarter of the gas in our grid is biomethane. I believe that is quite outstanding," she added. "According to the Danish biogas association, we can double the production over the next three years with full use of existing and establishments of new plants. At the same time, the North Sea holds a lot of resources. They are on stand-by right now but should be up and running soon."

In general, Scandinavian countries are relatively self-sufficient and depend little on the import of Russian gas, Münster noted.

“Sweden imports gas via pipes from Denmark to the southwest of the country, and Norway is a major exporter. Both countries utilize waterpower on a great scale. European countries like Austria, Hungary and of course Germany rely much more on supply from Russia," she said.

Debates over alternative energy sources in Europe will likely intensify over the coming months, as will debates on whether companies — like Ørsted — should still do business with Russia.

Categories / Business, Economy, Energy, International

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