GDF Says Long-Term Gas Deals Must Be More Flexible to Survive

GDF Suez SA (GSZ), operator of Europe’s biggest natural gas network, said suppliers need to make long-term gas contracts more responsive to day-to-day prices or European buyers will ditch them.

“The alternative is to stop the long-term contracts” linked to oil prices and get supply from the spot market, Vice Chairman Jean-Francois Cirelli said in an Oslo interview yesterday. Without more flexibility, “I don’t see how gas will become competitive.”

Contracts between suppliers such as OAO Gazprom (OGZD), Algeria’s Sonatrach and Statoil ASA (STL) and European utilities need to become more like U.K. deals, where market mechanisms have to a large extent replaced oil-indexation, he said.

European utilities including GDF, EON AG and RWE AG have pressed suppliers including Russian gas-export monopoly Gazprom to revise long-term agreements after losing hundreds of millions of euros on contracts linked to oil prices. Both Statoil and Gazprom have introduced a bigger element of market prices in long-term contracts, though the changes haven’t gotten as far in southern Europe as the rest of the continent.

Statoil faces arbitration proceedings with Italian client Eni SpA, which claims it has been over-billed for gas.

GDF’s biggest suppliers are Norway, Russia, Algeria and the Netherlands. GDF’s Cirelli said he was not targeting any companies or countries in particular.

Shopping List

GDF, which wants to increase its reserves to 1 billion barrels, has Norwegian oil and gas assets at the top of its shopping list, Cirelli said. GDF already gets more than 40 percent of its production from Norway.

“It’s an area where we want to grow,” he said. “In principle, we are looking for all opportunities across the region. Clearly, if there is one which fits us, good price, good prospects, we will certainly make an offer.”

GDF would like assets close to its present fields in the North, Norwegian and Barents Seas, Cirelli said. Recent oil finds in the Barents Sea have boosted optimism about Norway’s Arctic. GDF said more exploration success was needed to keep the industry’s activity at record levels.

GDF will maintain the same level of exploration as in the past years. Cirelli said he couldn’t provide the number of wells drilled last year or the company’s exploration budget.

To contact the reporters on this story: Mikael Holter in Oslo at mholter2@bloomberg.net; Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editors responsible for this story: Tina Davis at tinadavis@bloomberg.net; Will Kennedy at wkennedy3@bloomberg.net

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