Gazprom to refund European customers in natural gas contract renegotiations

11 February 2013 15:52 Source:ICIS

Russian natural gas producer Gazprom expects to return about $4.7bn (€3.5bn) to its European customers through price cuts in 2013, in a bid to remain competitive in its key export market.

The estimated sum is based on the likelihood that long-term supply contracts with European companies will be renegotiated, thereby lessening the obligation on buyers to pay for gas that they have been supplied with but have not used.

"We will adapt the pricing formulae to objective changes in the market conditions where there are such changes," a Gazprom spokeswoman said. "It's not about simply reducing the price but rather the adaptation of several contract parameters. The concrete price resulting from these adjustments will vary."

Several suppliers have requested a review of the long-term contract prices charged by the Russian major. These include Gazprom subsidiary WINGAS, Austria's Econgas and France's Gaz de France.

Gazprom Export's deputy general director Sergey Chelpanov recently said that the threshold for price revisions in these contracts had been passed. Chelpanov also said that not all of Gazprom's customers in Europe wanted to switch to a gas price formula that is linked to the spot market price, although some companies are keen to do so.

In 2012, Gazprom discounted its long-term gas price to such companies as Germany's E.ON Ruhrgas, Italian Eni, Slovak SPP and Poland's PGNiG (see ESGM 22 January 2013).

Last month, Gazprom sent an invoice to Ukraine demanding $7bn for 16 billion cubic metres (bcm) of gas under a take-or-pay clause in its contract. However, in a sign that Gazprom is in danger of losing its grip on European gas supply, Ukraine has said that it has no intention of paying the bill.

"We answered that we do not deem it reasonable to honour a $7bn bill, that is, to pay it, because we see no grounds for this," Ukraine's energy minister Eduard Stavytsky said last week.

Stavytsky also said that Ukraine plans to buy more gas from Europe via Slovakia and Hungary in the first quarter of this year.

While price concessions are afoot in order for Gazprom to remain competitive, the company has also said that it plans to increase exports to Europe by 10% in 2013. This would bring its total European exports to about 152bcm/year.

This could be a tall order, as most recent company results show falling sales volumes, due to milder weather and declining industrial consumption. Sales for the first nine months of 2012 fell by almost 8% year on year (see ESGM 17 January 2013). James Enright

By James Enright