UPDATE 1-BP considers spot-indexed Shah Deniz II gas sales
* BP considering full spot-indexation to grab market share
* Europe seen moving away from oil indexation - BP
* Shah Deniz Europe's best hope to diversify from Russia
By Oleg Vukmanovic and Stephen Jewkes
MILAN, Sept 24 (Reuters) - The consortium developing Azerbaijan's giant Shah Deniz II gas field is open to offering some buyers gas supplies fully linked to spot prices, BP's Vice-President for Shah Deniz Development Alastair Cook told Reuters on Monday.
"We're fully open to everything and we do not rule out a 100 percent spot linkage to some buyers," Cook said on the sidelines of an energy conference.
The move by Shah Deniz II, Europe's best hope of diversifying gas supplies from Russia, aims to capture market share from established suppliers by offering cheaper supplies of gas to cash-strapped European utilities.
"We would agree to (spot-indexation) because it's what our clients want...part of what we offer is new supply and diversification away from liquefied natural gas (LNG) and (existing) pipelines," Cook said.
Shah Deniz II is offering to pump 10 billion cubic meters of gas to Europe by 2018.
Europe has become a battleground for gas pricing with utilities challenging pipeline exporters like Russia and Norway to rethink a decades-old system linking gas supplies to high oil prices.
The backlash against oil-linked contracts has gained ground in recent years as waning demand for gas and economic recession across Europe forces utilities to defend dwindling profit margins.
German utility E.ON lost more than a billion euros last year on its long-term oil-linked supplies of Russian gas, because it was forced to sell the gas at discounted market prices.
"BP's view is that Europe is heading more in the direction of spot gas pricing," Cook said.
Existing suppliers to Europe favour oil-index pricing of gas sales because it helps guarantee long-term revenue, while switching to a gas index makes future profits uncertain.
"At Shah Deniz II we get revenues from sales of gas condensates (an oil-like substance) and from gas sales to Turkey, so with that diversification we can absorb greater uncertainty on gas sales to Europe," he added.
Azeri gas fields are the most developed new non-Russian sources of natural gas that can be pumped to the European Union through pipelines.
The European Union's desire to find alternative suppliers to Russia, which provides around a quarter of its gas, deepened after supply disruptions in 2006 and 2009 because of tension between Russia and transit state Ukraine. BP operates the Shah Deniz II gas field, which is thought to contain 1.2 trillion cubic metres of gas and holds a 25.5 percent stake, as does Statoil. The rest is divided between Azerbaijan state oil company SOCAR, Russian LUKOIL , NICO, Total SA and TPAO.
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