UPDATE: Gazprom Reduces Gas Prices To Some European Customers

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.)

Ascopiave (BIT:ASC)
Historical Stock Chart
From Nov 2024 to Dec 2024