GDF Suez Boosts Share of Gas Supply Deals Linked to Market Price

GDF Suez SA (GSZ) is boosting the share of its French natural-gas supply contracts linked to market prices amid a legal battle with the government on regulated tariffs.

Indexation to spot prices is now higher than the 26 percent at the start of 2012, Chief Executive Officer Gerard Mestrallet said today. A formula for calculating tariffs reflecting the shift may be unveiled next week, he said. GDF Suez’s biggest suppliers are Norway, Russia, Algeria and the Netherlands.

Environment and Energy Minister Delphine Batho will reveal on Dec. 10 household rates for natural gas from the start of the year. The government, which last week lost a court challenge by distributors to a price cap, may raise regulated rates 2 percent to 3 percent on Jan. 1, Le Figaro said without citing anyone.

GDF Suez and peers have won cases against the government in the past year to set regulated rates high enough to cover supply costs. The former monopoly said today a shortfall in earnings before interest, taxes, depreciation and amortization in the second half totaled 185 million euros ($240 million).

“The costs will have to be covered, this is the law,” Mestrallet said today at a conference. “We have not hesitated to sue our own shareholder. We’re on the safe side of the law.” France has to apply “clear rules” on setting prices, he said.

Europe’s natural-gas pricing system that links contracts to oil futures is impossible to maintain while long-term and spot prices are diverging, GDF Executive Vice President Jean-Marie Dauger says. Spot gas prices in Europe have dropped as economic stagnation cuts demand and liquefied natural gas imports rise.

European utilities including GDF Suez, EON AG and RWE AG (RWE) have pressed suppliers including Russian gas-export monopoly OAO Gazprom to revise long-term agreements after losing hundreds of millions of euros on contracts linked to oil prices.

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.