UPDATE 1-Statoil to squeeze Gazprom further in gas market

Thu Feb 7, 2013 6:02pm GMT

Quotes

   

* Statoil to give up more oil price-linked contracts

* Less than 25 pct of contracts will be oil linked by 2015

* Will expand sales and marketing

By Balazs Koranyi

LONDON, Feb 7 (Reuters) - Statoil could squeeze Russian rival Gazprom further as it has stepped up its marketing and is moving more of its gas contracts to flexible pricing, the Norwegian firm said on Thursday.

Europe's second-biggest gas producer is moving away from oil price-linked gas contracts, which are increasingly unpopular with European customers, hoping to cash in on market leader Gazprom's refusal to give up the traditional pricing mechanism.

Statoil had record gas sales and record profits in 2012, even as the European gas market shrank, as it squeezed as much out of fields as possible at higher prices.

"We're selling more in the UK and we're utilising more of the opportunity in hub markets and we are expanding our trading activities in the Netherlands and Germany," Statoil gas chief Eldar Saetre told Reuters.

Long-term gas contracts linked to oil prices have become a major problem for European utilities because they are forced to sell the gas at a loss.

A backlash against oil-linked contracts has gained ground in recent years as waning demand for gas and economic recession across Europe forces utilities to defend dwindling profit margins.

"We have expanded our marketing organization. We have increased our efforts in direct sales, we are accessing customers directly that we didn't have before. We are proactively expanding our trading business, we have directly approaching customers and we will continue to do so," Saetre said.

Statoil's fortunes have diverged from Gazprom, which is struggling with sales and faces a growing circle of clients demanding price cuts and new contracts.

Companies such as GDF Suez, ENI, EconGas and Wingas are asking for new contracts while Gazprom is in arbitration with Germany's RWE.

The market has shifted accordingly and Russian gas exports to Europe fell by nearly 10 percent in January-November 2012, raising expectations that Gazprom will have to cut prices.

"We have previously highlighted that we did not see the retrospective discounts which Gazprom agreed to give to its European customers for the period of 2010-2011 as final and we were expecting them to start another round of renegotiation in January 2013," Credit Suisse analysts said in a note earlier.

Gazprom's inflexible pricing policy means it currently sells gas at around 10-15 percent higher than the spot market price.

Statoil currently sells around 45 percent of its gas via oil-linked contracts and expects this to fall below 25 percent by 2015, Saetre said. (Reporting by Balazs Koranyi; editing by Jason Neely)

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