Europe May Buy Most Gas at Spot Prices by 2014, SocGen Says

Europe may buy the majority of its natural gas at free-market rates, rather than at prices linked to the cost of oil, by about 2014, Societe Generale SA (GLE) said.

“By 2014, oil indexation pricing should represent the minority of European gas supply,” Thierry Bros, a Paris-based analyst at the bank, said in an e-mailed report today.

Contract renegotiations between gas buyers and sellers mean that 55 percent of European supply may be oil-indexed this year, he said. Arbitrators deciding on disputed oil-linked gas-supply contracts between OAO Gazprom and buyers EON AG, RWE AG and Polskie Gornictwo Naftowe i Gazownictwo SA, may decide that agreements signed in the 1960s should now be spot-based, according to the report.

The increase in gas traded on exchanges and over the counter underlines attempts by Europe’s biggest utilities to end a pricing system that has led to losses as oil has climbed, while benefiting suppliers such as Russia’s Gazprom. The Russian company may have to refund European customers as much as $10 billion in retroactive discounts, Moscow-based Interfax reported in April.

Higher Norwegian gas deliveries to Europe in the first three months of the year and lower Russian gas flows may mean the backlog of Russian gas that must be taken at a later date will grow by 1 billion cubic meters, Bros said.

The bank repeated its recommendation to sell summer 2013 U.K. gas, saying that the fuel was too expensive to encourage higher demand.

To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net

To contact the editor responsible for this story: Lars Paulsson at lpaulsson@bloomberg.net

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