RWE Trading Unit’s Loss Doubles in Third Quarter on Gas Costs

RWE AG (RWE), Germany’s second-largest utility, doubled losses at its trading unit in the third quarter as it seeks further renegotiations with OAO Gazprom to lower the cost of gas under oil-linked contracts.

RWE Supply & Trading lost 126 million euros ($169 million) in the three months through September, according to a Bloomberg calculation that subtracts the unit’s six-month operating profit from the nine-month figure published today. That compares with a 63 million euro loss in the same period of last year.

“Our third quarter was weak in trading,” Bernhard Guenther, RWE’s Chief Financial Officer, said today on a conference call with journalists. “The unit’s profit and loss account is: trading profit minus gas losses minus costs for staff.”

The Essen, Germany-based utility buys gas from Russia’s Gazprom under long-term contracts at oil-linked prices higher than those on the wholesale market. While RWE renegotiated one of the contracts earlier this year, it still buys the fuel under unfavorable terms, the German company said today.

“The purchase conditions continue to be partly determined by developments on the oil market,” the company said in its earnings report. “We initiated a new price revision in order to fully eliminate oil indexing, which is disadvantageous to us.”

The price for gas imported at the German border was 27 euros a megawatt-hour at the end of August, according to data of the German Federal Office of Economics and Export Control, BAFA. That’s 5.3 percent more than the closing price of 25.63 euros a megawatt-hour on Aug. 30 for month-ahead gas on the Dutch Title Transfer Facility, the continental European benchmark, according to broker data compiled by Bloomberg.

Profit Forecast

Guenther declined to give details on the company’s gas supply contract or to comment on how much gas it still buys under oil-linked contracts.

RWE expects the unit’s 2013 operating profit to be “significantly higher” than last year, when Supply & Trading posted a 598 euro million loss, it said. The business generated an operating profit of 903 million euros in the first nine months of this year, RWE said in its report.

EON SE, Germany’s biggest utility, reported yesterday a 56 percent drop in its Global Commodities unit, which comprises trading, optimization and energy infrastructure, to 860 million euros. The business had also benefited from a one-time payment by Gazprom (GAZP) after renegotiating gas supply contracts, and EON said it had traded less power and gas than in the prior-year period.

To contact the reporter on this story: Julia Mengewein in Frankfurt at jmengewein@bloomberg.net

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

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