OMV AG (OMV), central Europe’s biggest oil company, said the gap between natural gas spot prices and long- term supply contracts with Russia’s Gazprom OAO (GAZP) will continue to pressure earnings next year.
OMV’s next round of price reviews with Gazprom is April 1, said OMV gas and power head Hans-Peter Floren at a press briefing in London. The Austrian company pays Gazprom about 5 euros ($6.4) more for gas per megawatt hour than it could purchase the commodity on European spot markets, the Vienna- based company said today.
“Those who are committed to purchase gas from Russia with the oil price as part of the formula of calculating the price are clearly carrying the burden,” OMV Chief Financial Officer David Davies said. “For Econgas, our sales subsidiary for natural gas in Austria, this has become a particular burden and it is now being seen in its results.
OMV’s reliance on Russian natural gas goes back to 1968, when the Alpine Republic negotiated imports with the former Soviet Union. Current agreements through 2027 will deliver Siberian natural gas to OMV storage facilities in Baumgarten, Austria. Gazprom, the world’s largest natural gas producer, plans to ship natural gas to Baumgarten via its South Stream pipeline.
‘‘No company has a longer relationship with Gazprom than OMV,” Davies said. While the company’s deal with Russia “is good when there’s no reliable liquid market” the emergence of spot pricing means “supply linked to the oil price makes it uneconomic.”
OMV’s third-quarter earnings before interest and tax fell 64 percent from the previous three months and were negatively impacted from the Russian spread, the company said Nov. 7. The day-ahead Austrian spot price for natural gas on Nov. 15 was 27.25 euros a megawatt hour, according to data collected by Bloomberg.
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 OAO Gazprom. EON, Germany’s largest importer of the fuel, and RWE AG (RWE) are in arbitration with Gazprom. The Russian company may have to refund European customers as much as $10 billion in retroactive discounts, Moscow-based Interfax reported April 13.
OMV’s talks with Gazprom on April 1 will focus on the “price level, pricing dynamics and price pegging,” Floren said. “The most important issue is to bring the price level down to the market level.”
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