* 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 (Reuters) - 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 shrunk.
“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, said.
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. [ID:nLDE61I149]
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 .MCX.
“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 Daniel Fineren