Defence firm Sheffield Forgemasters told to end contract with Gazprom

The defence manufacturer Sheffield Forgemasters, which was nationalised last summer, has been told by the UK government to terminate an energy contract with the Russian state-owned company Gazprom.

The South Yorkshire steelmaker, owned by the Ministry of Defence but largely run independently, is a key supplier for the Trident submarine fleet. It has been told to ditch a deal with Gazprom’s UK arm, in news that was first reported by the Sunday Telegraph.

While Sheffield Forgemasters has its own board that has yet to decide on the Gazprom contract, it is understood that the MoD has made clear to the company that ministers expect the arrangement to be terminated.

The company’s chief finance officer, Steve Hammell, said: “We can confirm that Sheffield Forgemasters has ceased all product supply into Russia and as global energy markets react to the Russian invasion of Ukraine, the board is reviewing its energy supply as a matter of urgency.” The firm declined to comment any further.

Terminating the Gazprom contract would force the steelmaker to find a new supplier at a time when wholesale gas prices are soaring, and potentially pay penalty fees for an early exit from its contract.

Sheffield Forgemasters, one of Britain’s oldest companies, became a Gazprom customer when the Russian business entered the UK market with the purchase of the Cheshire firm Pennine Natural Gas in the summer of 2006. In 2013, Sheffield Forgemasters revealed that it had secured a flexible contract with Gazprom that allowed it to buy gas years in advance at low prices.

The news came as the UK chancellor, Rishi Sunak, called on UK firms to stop investing in Russia. He welcomed the decisions made by some companies, such as the energy firms BP and Shell, along with the investment companies Aviva, M&G and Vanguard, to divest away from Russian assets, and urged others to consider doing the same.

A growing number of major international companies – including McDonald’s, Coca-Cola, Ikea and Uniqlo – are pulling out of Russia after its invasion of Ukraine more than two weeks ago.

The MoD spent £2.6m on the Sheffield Forgemasters acquisition last July, and pledged to invest as much as £400m over the next decade to replace critical equipment and infrastructure required for its military production capacity.

The government has not announced sanctions on Russian gas companies yet but has said it is “exploring options” to end Britain’s reliance on Russian gas.