(Bloomberg) -- German state-owned energy group SEFE pledged to keep a natural gas supply contract with Russia, further stirring a contentious issue in Europe’s efforts to reduce its energy dependence on Moscow. 

The dilemma is set to worsen as rising transportation costs mean shipments of Russian liquefied natural gas from Yamal to key client GAIL India Ltd. may end up in Europe. SEFE, or Securing Energy For Europe GmbH, could supply GAIL from other sources in its portfolio if it’s cheaper to keep Yamal supplies on the continent, according to Egbert Laege, chief executive officer of the company.

“This is a contract that’s part of our portfolio and we are a state company so we have to manage it in an economical way,” he said in an interview in Essen, Germany. “If there are economic efficiencies to be gained to supply the Indian demand through sources in Asia or the Middle East, then I guess that’s our obligation to do so in order to save transportation cost, which then would mean that some of the volumes might stay in Europe.”

SEFE’s trading of Russian LNG is controversial in Berlin, where lawmakers have urged the company to sever its links with Moscow. Germany opposes LNG imports from Russia, though it hasn’t banned them. Neither has the European Union, and Russia remains among the region’s biggest suppliers of the super-chilled fuel amid long-term contractual obligations such as the one that SEFE has.

The company was cut off from Russian LNG supplies following Berlin’s nationalization of the German operations of Gazprom PJSC, ultimately affecting shipments to India. The restrictions have since been lifted and SEFE now has access to Yamal LNG through 2040, beyond the contract’s end, Laege said. 

“There are currently no plans to get rid of it,” he added, referring to the Yamal LNG and GAIL supply contracts inherited when Germany took over the company.

SEFE is also sourcing its gas elsewhere, including Norway. In December, Equinor ASA struck its biggest gas sales deal in more than three decades, agreeing to send 10 billion cubic meters a year to Germany. That’s about half of SEFE’s gas needs, with the rest coming from LNG, Laege said.

The company has a contract to buy LNG from Venture Global’s CP2 plant in Louisiana that is yet to be authorized amid a temporary pause on new export projects imposed by US President Joe Biden last month. The US administration said it needs to scrutinize the impact of new projects on climate, the economy and national security.

Europe Faces the Chill as Biden Freezes New LNG Export Permits

“We are looking at what is happening in the US with some concern because it has a direct impact on the security of supplying of Europe,” Laege said. “It will have an impact if basically those volumes would not be available for Europe.”

SEFE is building a diversified portfolio of supplies in various locations, with different delivery tenures, according to Laege. The German company is confident gas demand in Europe will remain strong until the middle of next decade, while the global LNG market will grow until 2050.

“We are not afraid that we cannot find a home for the contracted volumes that we have, even under long-term contracts,” he said. 

--With assistance from Petra Sorge.

(Updates with CEO comments on demand, other contracts in last two paragraphs.)

©2024 Bloomberg L.P.