UPDATE: Gazprom Reduces Gas Prices To Some European Customers
January 17 2012 - 12:29PM
Dow Jones News
In a rare concession to European utilities that have long
pressed for pricing relief, Russian state gas producer OAO Gazprom
(GAZP.RS) said Tuesday it had agree to lower the price to several
European importers by an undisclosed amount due to changing market
conditions.
The move comes as an inflow of liquefied natural gas to Europe
and increased production of shale gas in the U.S. have pushed
Gazprom's long-term contract prices above spot market prices,
prompting importers to ask for contractual changes. The shift also
comes amid recent declines in natural gas demand in Europe in the
wake of the mild winter, a condition that has prompted some
utilities to cut retail prices recently.
Gazprom--a supplier of about a quarter of Europe's gas
needs--said price reductions were given to France's GDF Suez SA
(GSZ.FR), Germany's Wingas, Italy's Sinergie Italiane, Slovakia's
Slovensky Plynarensky Priemysel AS, or SPP, and Austria's Econgas
Group, Gazprom said. Gazprom continues to face arbitration
proceedings with some other utilities that have pressed for
relief.
"Gazprom has reached and formalized agreements with a number of
major European buyers, which involves certain adjustments to the
price of Russian gas," said Gazprom's Deputy Chief Executive
Alexander Medevdev.
"(The changes) take into account developments in the gas market
in Europe and the situation with the economy and the energy sector
of certain European states," he said.
The five companies import around 35 billion cubic meters of
Russian gas a year, or close to a quarter of Gazprom's European
exports.
A Wingas spokesman confirmed the company had "agreed new import
conditions" with Gazprom. An Econgas spokeswoman said "intense"
negotiations had been held with long-term suppliers in recent
months, but declined to give any details. GDF Suez and Sinergie
Italiane declined to comment, while SPP couldn't be reached for
comment.
Gazprom didn't disclose the size of the discounts, but a person
familiar with the matter said the price drop given to Sinergie
Italiane is "significant" and backdated to start from Jan. 1,
2012.
The reductions were given for a two to three year period, while
Gazprom holds the right to renegotiate these changes at any time if
significant changes should occur in the European gas market, said a
person close to Gazprom.
Several European gas wholesalers are engaged in long-standing
talks with Gazprom to adjust the commercial terms of the contracts,
as their profit margins have been under severe pressure due to the
disconnect between long-term, oil-indexed procurement prices and
the lower selling prices to customers. Gas prices under Gazprom's
long-term contracts follow a basket of oil products with a six to
nine months lag.
Gazprom agreed in 2010 to link 15% of export volumes to the spot
market price for a handful of Europe's biggest utilities, but has
since been in no mood to give further discounts. As the market
situation worsened in Europe, companies such as Germany's E.ON AG
(EOAN.XE) and RWE AG and Poland's PGNiG last year began arbitration
proceedings against Gazprom.
Gazprom has insisted on keeping the oil price link, which has
been under attack since the oil price spiked in 2008 at $143 per
barrel. The company said Tuesday that the new price reductions
won't imply a bigger share of export volumes being linked to the
spot prices in Europe.
-By Jacob Gronholt-Pedersen, Dow Jones Newswires; +7 495 232
9197; jacob.pedersen@dowjones.com
(Liam Moloney in Rome contributed to this story.)
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