UPDATE 3-Gazprom to cut gas price for Europe in 2013-source

Tue Dec 18, 2012 4:39pm GMT

Quotes

   

* Price expected at $370 per 1,000 cm, down from over $400

* Would equate to a spot market price of 26 euros/MWh

* Would be competitive with German spot market

* Exports expected to rise to 152 bcm next year (Adds analyst comment, background in para 4, 5, 6)

By Vladimir Soldatkin and Henning Gloystein

MOSCOW/LONDON, Dec 18 (Reuters) - Russia's Gazprom , pressured by customers and competitors to reduce its gas charges, is likely to cut long-term contract prices to Europe next year to levels comparable to the spot market, a source at the company said.

The price of the natural gas Russia's gas export monopoly sells to Europe on long-term contracts could fall to around $370 per 1,000 cubic metres in 2013 from over $400 this year.

"This (price) is a base-case scenario. The forecast is subject to change during the course of the year," the source said on Tuesday.

It would equate to a spot market price of around 26 euros ($34.22) per megawatt-hour (MWh), below current German spot gas prices of over 27 euros a MWh and still slightly below price levels for delivery next summer.

Gazprom, Europe's biggest supplier of gas, has come under increasing pressure from rival suppliers such as Norway's Statoil, which unlike Russia adapted its pricing policies early on to reflect customer demands for cheaper gas.

A near 10-percent drop in Russian gas exports to Europe over the January-November period, versus the prior year, underscores the extent to which Gazprom is losing its main export market, Thierry Bros, analyst at French bank Societe Generale said.

The company is keen to defend its dominant position because it depends on European revenues, which account for around 80 percent of its income.

"The minimum European price for Gazprom (with zero margin) could be $160 per 1,000 cubic metres...this shows that Gazprom has room to reduce its price further," Bros said.

The source said gas exports to Europe are expected to increase to 152 billion cubic metres (bcm) next year from just over 140 bcm in 2012, which came in below forecasts due to sluggish demand.

In 2011 the price was $390 per 1,000 cubic metres, and Gazprom said earlier this year that its average price for 2012 was likely to be $405 to $415 by the end of the year.

At almost 30 euros per MWh, this year's price is higher than even the most expensive winter contracts in Germany's spot market, where levels currently do not exceed 29 euros a MWh.

PRESSURE TO REDUCE PRICES

Europe's gas demand has declined because of its economic slump, energy efficiency drives and competing fuels in its main market, Germany.

Because of these developments, Gazprom has been under pressure from customers and competitors to cut its prices.

Statoil, Gazprom's biggest rival to supply Europe with gas, said earlier in December that it expected the majority of its supplies to be sold under spot market pricing models in future.

Prices in long-term contracts to supply gas via pipeline have historically been pegged to oil prices, because both fuels used to be produced by the same exporters and were often used in the same industries. Oil has remained expensive despite the economic downturn.

European utilities that rely on imports of piped gas have been selling the gas on to customers at retail prices that are linked to the freely traded and lower priced spot market.

As a result of this profit squeeze, many utilities have sought to renegotiate their contracts with suppliers such as Statoil and Gazprom, seeking a higher share of spot-market indexation in their supply deals.

Adding to the price pressure, the European Commission opened an investigation in September into allegations that Gazprom was abusing its dominant position in Central and Eastern European gas markets. ($1 = 0.7598 euros) (Additional reporting by Oleg Vukmanovic, editing by Jane Baird and David Cowell)

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