* Deal backdated to start of 2014
* Analysts: To add 560 mln euros to Eni's operating profit
* Comes after Ukraine crisis and China gas deal
(Recasts, adds analyst comment, economic impact, background)
By Oleg Vukmanovic and Stephen Jewkes
MILAN/ST PETERSBURG, May 23 Italy's Eni
struck a landmark deal with Russia's Gazprom that
abandons a 50-year old system of indexing gas supplies to oil
prices, setting a precedent other European buyers may be able to
use in negotiations.
The agreement, signed by the groups' chief executives in the
Russian city of St Petersburg on Friday, sets "an important
change" in the price-indexation mechanism in the contracts to
align them fully with the spot market, Eni said in a statement.
Gazprom has for years defended oil-indexed gas sales as a
cornerstone of its business, even while high costs relative to
spot gas prices have forced its European clients to swallow
multi-billion euro losses.
The backlash against oil-linked contracts has gained ground
in recent years as waning demand for gas and economic recession
across Europe have forced utilities to defend dwindling profit
German utilities E.ON and RWE, Gazprom's
biggest customers, have spearheaded efforts to bring down
Russian gas prices, although other suppliers such as Algeria
also insist on oil-linked prices.
"The discount Eni won is a positive signal that Gazprom is
doing things in an efficient way and supporting Eni," said Jason
Kenney, an oil analyst at Santander.
"It's working with the company flexibly," he added.
The shift to a link with freely traded spot gas prices at
European hubs is likely to bolster profits at the oil major,
Italy's biggest company.
Sanford Bernstein analysts estimated the deal would lift the
operating profit of Eni's Gas and Power division by 560 million
euros for this year alone.
The deal may also help Eni put pressure on its other gas
suppliers, Algeria and Libya, to convert to spot market pricing
and away from oil-indexation.
STATOIL THE FIRST
Europe's second-biggest gas producer, Statoil, was
the first to offer its clients gas supplies fully priced
according to spot market rates.
Eni, one of Europe's biggest gas wholesalers, last
renegotiated its contracts with Gazprom in 2013, securing a
price cut estimated to be under 7 percent.
Its head of exploration and production, Claudio Descalzi,
took over as CEO of the Italian oil major earlier this month.
Some analysts have expressed concern over costly gas
contracts with Russia, given growing tensions in Ukraine. The
crisis between Europe and Russia has driven some European gas
importers to seek alternatives to what they view as an uncertain
Russian supply, much of it via pipeline through Ukraine.
Earlier this week, Gazprom sealed a long-delayed gas deal
with China in a major pivot of Russia energy flows to Asia.
The arrangement with Beijing will affect prices
in Europe, the chief executive of the Russian company said.
Italy, which imports around 90 percent of its gas needs,
received some 40 percent of its imported gas from Russia last
State-controlled Eni said the terms of the agreement with
Gazprom would be backdated to the start of 2014.
(Reporting by Dmitry Zhdannikov and Vladimir Soldatkin in St
Petersburg; Editing by Dale Hudson)