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25/07/2016

Gazprom ‘adjusts’ prices for selected European clients

Energy

Gazprom ‘adjusts’ prices for selected European clients

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Russian natural gas producer Gazprom has yielded to requests from several European companies for easier gas supply terms as it seeks to keep its market share in face of weakening fuel demand due to economic difficulties in the region.

Many European gas supply companies are hurting from long-term gas deals with suppliers such as Gazprom or Norway's Statoil, which link their import rates to oil prices, while supply firms have to sell gas to customers at lower retail prices linked to the freely traded spot market.

Gazprom said on 17 January that it had adjusted contracts with France's GDF Suez, its German joint venture Wingas, Slovakia's dominant gas provider SPP, Sinergie Italiane and Austria's EconGas in deals finalised in late 2011 and early 2012.

Analysts said Gazprom had altered the basis of the calculation used to link gas prices to oil in a way that would temporarily result in price reductions of no more than 5%, and these would last to 2014.

Gazprom Export head Alexander Medvedev said in a statement: "In the end of 2011-beginning 2012 Gazprom Export have reached and concluded agreements with some large European buyers, which foresee a certain adjustment to the Russian gas prices."

He said the adjustments were made "to take into consideration development of the gas market in Europe and situation in economics and energy sphere of some European states."

"We understand that the adjustments are temporary in nature, and Gazprom can re-open the price mechanism if and when the market situation changes in the course of the next three years," US bank Citi wrote.

"We still believe no material, long-term adjustments will be made."

A source at Gazprom Export said that the coefficient used to calculate the price of Russian gas exports against the price of a basket of oil products had been changed, allowing for more flexibility in the final bill.

"It can work both up and down," the source said.

However, a source close to talks between the Russian company and Sinergie Italiane said the prices have been revised down "significantly".

"Conditions have improved for Sinergie Italiane. The volumes have not been touched," the source said, declining to provide price details.

Gazprom disclosed it was in pricing talks with GDF Suez, SPP, Sinergie Italiane, EconGas and several other companies in accounts published in early 2011.

Russia is responsible for around one-quarter of gas imports in the EU.