OAO Gazprom (GAZP) sees its average price for Europe dropping for the first time in four years as customers win additional concessions from the world’s biggest natural-gas producer and oil prices ease.
Gazprom will charge European clients an average $370 to $380 per 1,000 cubic meters this year, compared with $402 per 1,000 cubic meters last year, Deputy Chief Executive Officer Alexander Medvedev told reporters today at the company’s Moscow headquarters. Rising volumes will support revenue, he said.
European buyers including EON SE and Eni SpA (ENI) have been pressuring the state-controlled exporter for discounts since its average gas price reached a record in 2008 while a recession cut demand for the fuel and made gas available at reduced market prices. Gazprom, which supplies about a quarter of Europe’s gas, sells the fuel under multi-year contracts linked to crude and oil-product prices with a time lag of six to nine months. Brent has fallen about 8 percent this year.
“The two factors are playing a role,” Medvedev said. “Retroactive payments for ongoing talks won’t exceed about $800 million to $900 million,” excluding any discounts for Germany’s RWE AG (RWE), he said.
The Russian gas exporter expects to conclude the current round of talks on price revisions with most of its “key partners” by the end of June, Medvedev said. The majority of its contracts will be renegotiated via talks, he said.
Gazprom is talking with Eni, GDF Suez (GSZ) SA, and EconGas, Medvedev said. It remains in arbitration and in talks with RWE. Gazprom’s German ventures WIEH and Wingas were also renegotiating supply terms with Gazprom after contracts became eligible for review this year, Sergei Chelpanov, Gazprom Export’s deputy chief, said on a Jan. 17 conference call.
Gazprom recognized 102.7 billion rubles ($3.2 billion) in retroactive payments last year, according to its 2012 financial report.
Gazprom plans to cut the price by less than the average it agreed to in the previous round of talks, Medvedev said. Last year, the gas producer agreed to a reduction of about 7 percent to 10 percent for clients including EON and GDF, after consecutive increases on an annual basis since 2009.
Gazprom didn’t increase the role of spot pricing in renegotiations that included revisions of the existing price formula, Medvedev said. The share of spot-indexed contracts doesn’t exceed 7 percent to 8 percent in the total contract portfolio.
Export revenue will probably rise to about $57 billion this year from $56 billion in 2012, Medvedev said. Volumes to Europe, including Turkey and excluding the Baltic countries, will increase by 10 percent to at least 152 billion cubic meters this year, he said. Russian gas exports to Europe in the first five months of this year were supported by colder weather.
Gazprom, which is seeking to increase its presence in global liquefied natural gas trade, is studying a new project in the European part of Russia, Medvedev said. Studies on expanding the Sakhalin-2 LNG plant, Russia’s only existing project to turn gas into a liquid for transportation, will be completed this month, Pavel Oderov, head of Gazprom’s department for foreign business, said today.
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