* Poland's PGNiG shares surge, sees profit boost from deal
* Gazprom still faces EU investigation, row over
* Other gas suppliers also under contract pressure
* Oil-indexed gas remains more expensive than spot gas price
By Melissa Akin and Marcin Goettig
MOSCOW/WARSAW, Nov 6 Russia's Gazprom
on Tuesday gave way in the last of its pricing disputes with big
European customers, settling with Poland's gas monopoly PGNiG
, although it still faces a European Union probe into
its supply contracts.
PGNiG said that its core earnings would rise by 2.5-3
billion zlotys ($776-$931 million) thanks to the deal, prompting
a surge of its share prices.
Poland uses around 15 billion cubic metres (bcm), or almost 3
percent of EU gas demand a year, most of that from Russia.
European utilities that rely on imports are squeezed as they
buy gas under long-term deals with Gazprom or Norway's Statoil
linked to the price of oil while having to sell it to
customers at lower retail prices linked to the freely traded
Gazprom faced a barrage of arbitration suits over prices,
and stumped up rebates for Germany's E.ON and RWE
, Italy's ENI and Edison, as well
as Greece's DEPA.
It paid $4.25 billion under these agreements in the first
half of the year.
The concessions mean that other gas exporters - such as
Norway, Qatar, Algeria, Libya and Azerbaijan - that rely largely
on long-term gas contracts to supply customers in Europe are
also coming under pressure to adjust their contracts.
Russia argues that the deals mean that it was able to defend
its established pricing model of long-term gas supply contracts
against rising customer pressure to price gas off spot markets.
In accepting price cuts Russia is also paying a high
short-term price to protect its long-term position as Europe's
dominant gas supplier.
The EU receives around a third of its gas from Russia, but
Gazprom is even more reliant on European revenues, with around
80 percent of its gas being sold to Europe.
"This is an important step to restoring the competitiveness
of PGNiG's long-term contracts," Gazprom's head of export
Alexander Medvedev, said in a statement.
Gazprom said an addendum to its oil-linked contract with
PGNiG took into account market prices for gas and refined
products for deliveries on the Yamal-Europe pipeline, but left
take-or-pay and long-term contract principles intact.
The EU, perennially concerned by its energy dependence on
Russia, has launched a formal investigation into the long-term
contracts and possible abuse of a dominant market position by
Gazprom, mostly in former Soviet satellite states in Central and
Gazprom's long-term contracts remain uncompetitive against
the spot market despite the rebates it was forced to concede.
Oil-indexed gas prices cost almost 90 pence per therm,
almost 25 pence more than benchmark spot prices on Britain's NBP
gas hub, data from Thomson Reuters Point Carbon shows.
This means that many European customers delay contracted gas
deliveries to the latest date possible under their supply
Should a customer still not take delivery after that date, a
so-called take or pay clause comes into effect, which requires
customers to pay fines if they take less gas than specified in
their long-term contracts.
French bank Societe Generale said in a recent
research note that it expected oil-indexed gas supplies to see a
lower weighting than spot indexation in the pricing structure of
European gas supply contracts by 2014.
Oil-indexed gas pricing began after gas was discovered in
the North Sea and the Netherlands in the 1960s and sales
contracts were priced against competing heavy fuel oil and
In recent years, Gazprom has received payment for unshipped
gas in the billions of cubic metres, a boost to its profits
which it has referred to as "virtual export," but customers are
increasingly also challenging this pricing model.
In October, RWE Transgas, the Czech unit of Germany's RWE,
won a landmark court ruling stating that a company did not have
to pay fines under a take or pay clause.
The CEO of ENI, a Gazprom customer and also an important
partner in projects including the South Stream pipeline, a major
new export route to southern Europe, has said he was considering
not renewing take-or-pay contracts.