* Talks with top EU customers completed
* Spot gas added to pricing system
* Oil-indexed prices still remain the pillar
(Adds analyst, share price)
By Anton Doroshev
MOSCOW, Feb 19 Russia's Gazprom (GAZP.MM) has
agreed to supply some of Europe's gas at spot market prices in a
bid to defend its shrinking market share after three decades of
oil-indexed pricing, a Gazprom source said on Friday.
The source told Reuters that Gazprom, which supplies about a
quarter of Europe's gas, had agreed to allow a European spot
price element in deals with most European customers in a move
that will likely be cheered by its stock holders.
Analysts and investors have criticised the Russian gas
export monopoly for its lack of pricing flexibility as its big
European buyers have bought more gas on Europe's growing spot
markets over the last year and demand for Gazprom's product has
"The spot market is playing a certain role and we have taken
this role into account in our contracts without changing
fundamental principles," the source, who asked not to be named,
Germany's E.ON Ruhrgas (EONGn.DE) said on Friday it had
completed talks on more flexible gas purchasing contracts with
Gazprom, allowing one of Europe's biggest Russian gas buyers to
get a chunk of its contracted supplies at spot prices.
The shares of Gazprom traded 1.1 percent up at 1512 GMT, in
line with the broader oil and gas index .MCXOG of Russia's top
bourse MICEX .
"The agreements reached do not put into question the
fundamental principles -- the system of long-term contracts, the
"take-or-pay" principle and the pricing system based on a peg to
a basket of oil products," the Gazprom source added.
Take-or-pay contracts requires customers to pay for a
certain volume of gas even if they do not take delivery of all
of it. a clause which caused a lot of controversy last year.
Increased LNG production and less voracious demand for
imported gas in the United States than previously expected has
boosted supplies of LNG in Europe over the last year.
The extra supply drove spot European gas market prices below
oil-indexed Russian prices, leading Gazprom's customers to
consume as little Russian gas as their long-term contracts allow
so they could lap up the cheaper LNG.
"Gazprom is unable to sell any more gas under the old
oil-indexed price formula. Breaking the oil link is the only way
to get additional profits from European gas sales," said Mikhail
Korchemkin from East European Gas Analysis think-tank.
The fall in gas demand has already prompted Gazprom to
postpone the launch of the giant Bovanenkovo Yamal Arctic
deposit and Shtokman on the Barents Sea [ID:nLDE6141ZH]
"We are adapting the contracts' pricing to strengthen
competitiveness of Russian natural gas on key European markets,"
the Gazprom source said.
(Writing by Dmitry Zhdannikov, Editing by William Hardy and