ROME Italian oil and gas group Eni (ENI.MI) said it may demand as much as $10 billion from Norway's Statoil (STL.OL) in arbitration in one of the biggest cases ever over expensive long-term gas contracts.
Eni started arbitration proceedings against Statoil in August. Chief Executive Paolo Scaroni said on Thursday that a recent Norwegian media report that it was demanding $10 billion was "probably true".
The dispute stems from a 1997 supply agreement that ties natural gas prices to refined oil products, a common practice in the past that has proven expensive as European spot gas prices have fallen relative to oil prices.
"That $10 billion is probably the value of the discount over the entire 20-year contract period. It's a huge sum of money," said a source familiar with long-term gas contract arbitrations.
Statoil declined to comment.
Europe's biggest gas suppliers Gazprom (GAZP.MM) and Statoil have seen a backlash in recent years from cash-strapped European buyers, locked into long-term supply contracts, to cut prices and move away from oil price-linked contracts.
Statoil has already renegotiated over half of its contracts, and analysts estimate that about half of its gas is now traded on a spot basis, a benefit to customers while oil prices are relatively high and European gas demand is weak.
After first resisting offering discounts, Gazprom followed suit in order to reclaim lost market share from Statoil. It agreed to return 102.7 billion roubles ($3.1 billion) last year in back payments.
Such payments will be much smaller this year, the firm said, after it started to recover some market share lost to Statoil.
Repayments by Gazprom to German utility RWE (RWEG.DE) for gas purchases dating back to 2010 helped drive its trading earnings 1.3 billion euros higher in the first nine months of this year.
Meanwhile, Edison (EDNn.MI) won a 350 million euro arbitration payout from liquefied natural gas (LNG) supplier RasGas last year, and Algeria's Sonatrach paid out a similar amount to the Italian utility in 2012.
Eni's Scaroni has previously said the Norwegian gas supplies are the most expensive in its portfolio and that the company launched arbitration after negotiations failed.
Although Norway sells all its gas to Britain under prices linked to freely traded spot gas markets, supplies to Italy are linked to gasoil, a refined oil product, making it more expensive, analysts say.
Earlier this year Eni renegotiated its contracts with Gazprom, securing a price cut, and with Algeria's Sonatrach, enabling it to withdraw lower gas volumes.
It is also renegotiating its contracts with Gas Terra.
Italy is re-orienting its import strategy away from Algeria and towards Russia and Azerbaijan. It halved imports of expensive Algerian gas this year to 10 billion cubic metres.
($1 = 33.1600 Russian roubles)
(Reporting by Alberto Sisto, Stephen Jewkes, Balazs Koranyi, Oleg Vukmanovic and Henning Gloystein; editing by Jane Baird)