* Dispute with Italy's ENI related to 1997 supply deal
* Statoil, ENI arbitration is one of biggest ever gas arbitrations
* Price dispute could spread beyond Italy and Norway
By Gwladys Fouche and Henning Gloystein
OSLO/LONDON, Nov 29 Norway's Statoil is open to discussing its gas contracts with customers, its CEO said on Friday, a day after ENI's chief said it may demand as much as $10 billion from Statoil in what may become the biggest case yet over long-term deals.
Europe's biggest gas suppliers, Russia's Gazprom and Statoil, have seen a backlash in recent years from cash-strapped European buyers locked into long-term supply deals that have costly links to the oil price.
Italy's ENI started arbitration proceedings against the Norwegian firm in August, and chief executive Paolo Scaroni said on Thursday that a Norwegian media report that it was demanding $10 billion was "probably true".
Statoil CEO Helge Lund on Friday declined to specifically comment on ENI's case but said his firm was flexible in terms of its contracts and open to discussions.
"On a general basis, we have modernised all other contracts and we are reasonable, flexible and very focused on the long-term opportunities for gas," Lund told Reuters on the sidelines of a gas seminar.
"I think the fact that we have modernised all other contracts speaks for ... that we take a reasonable and rational approach according to market circumstances."
Most long-term supply deals allow for regular price reviews in which buyers must demonstrate a financial loss caused by the supplies, for instance if the gas cannot be used profitably to generate electricity or if it is sold cheaper domestically than it is bought from the supplier.
If a bilateral review is not successful, arbitration becomes possible as a last resort, a costly process that usually takes years.
ENI says Norway supplied it over 12 billion cubic metres of gas in 2012.
Should Statoil be forced to pay the full $10 billion, that would be more than half of its 2012 annual gas revenues, although it is unlikely to have to pay the full sum.
Statoil has already renegotiated over half of its contracts, and analysts estimate that about 50 percent of its gas is now sold on a spot market basis.
Because of sluggish economic growth, Europe's spot gas prices on hubs such as Britain's National Balancing Point (NBP) are currently cheaper relative to oil, which has remained costly because of booming Asian demand and due to political instability in oil-rich North Africa and the Middle East.
NOT ONLY NORWAY
Unlike Statoil, Gazprom initially resisted discounts to its oil-linked gas contracts, leading to the loss of its position as Europe's top gas supplier to Statoil in 2012.
But recent concessions to its biggest clients worth 3 billion euros ($4 billion) as well as a slightly higher spot link in its supply deals allowed it to regain market share, and Societe Generale said this week that Gazprom would retake the top supply spot in Europe in 2014.
Although Norway has been the quickest among major producers to offer more of its gas under spot market terms, including almost all of its supplies to Britain, many of its customers are still locked in to long-term deals linked to the oil market.
ENI has said that Norwegian gas is now the most expensive source in its portfolio, and sources say this is because it is linked to the price of gasoil while other long term deals, such as with Algeria or Russia, are indexed to cheaper fuel oil.
But analysts say that the price row could have effects far beyond Norway. Gazprom has begun building its huge South Stream gas pipeline, intended to pump 63 billion cubic metres of gas a year from Russia via the Black Sea into Europe from 2016, and will be selling half of its gas to Italy.
Analysts say that the huge development costs of South Stream, estimated to be at least 17 billion euros ($23 billion), mean that Russia cannot conceded much more without undermining the project's return on investment.
"Gazprom is very worried that if this Statoil/ENI price case spreads and another wave of renegotiation rolls across Europe, then South Stream becomes undermined and some financiers may jump off," one source close to the matter said.
Shareholders in South Stream are Gazprom, France's EDF , Germany's Wintershall, and ENI.
"The price of Russian gas for 2013 is in our opinion satisfactory. We will begin negotiations for 2014 but it has to follow the natural processes in place with our counterpart Gazprom," said ENI's Scaroni this week.
Gazprom sources said they had not been approached by ENI about new prices yet, and pointed out that the Italians had already received a recent rebate. ($1 = 0.7353 euros) (Additional reporting by Stephen Jewkes in Milan, Vladimir Soldatkin in Moscow, and Oleg Vukmanovic in London; Editing by Giles Elgood)