Gazprom rejected all requests from its European customers to be more flexible about gas contracts, even as the economic downturn reduced demand, analysts said Monday, after a meeting with Alexander Medvedev, the company’s deputy chief executive.
Take-or-pay clauses in Gazprom’s long-term export contracts require European utility companies such as Ruhrgas and GDF Suez to pay for a set amount of gas every year even if they don’t need that much. Medvedev, who oversees exports, indicated at the Sunday meeting that the world’s biggest gas company didn’t relent on the terms as the year is ending.
“Medvedev said Gazprom had rejected all requests to change the existing take-or-pay principle with its European customers and does not plan to materially alter the terms of any of its contracts,” Renaissance Capital’s analyst Alexander Burgansky said in a note for investors.
Gazprom’s deputy chief of exports, Sergei Chelpanov, said early last month that 8 billion to 9 billion cubic meters of gas would fall under the take-or-pay clauses this year.
Gazprom exports will probably fall 10 percent to 170.6 bcm as demand flagged, Deputy Prime Minister Igor Sechin said at a meeting with President Dmitry Medvedev, giving the latest estimates on energy trade. Exports in the last few months of the year are higher than they were this time last year, Sechin said.
The way that Gazprom prices its gas will also remain unchanged, as it will keep the cost pegged to a basket of oil products, Medvedev said. European Union energy officials have been displeased with the peg.
“The pricing mechanism is not subject to negotiations,” VTB Capital’s analysts Lev Snykov and Svetlana Grizan wrote in a note to investors that listed the key takeaways from the meeting.
Medvedev estimated that next year gas in Europe would sell for $325 per 1,000 cubic meters on average, in line with Renaissance Capital’s expectations, Burgansky said. This year, Gazprom expects the average price to be $280 per 1,000 cubic meters.
Gas sales on the European spot market, which severely undermined Gazprom’s exports this year because of lower prices, account for 15 percent of total sales, Burgansky cited Medvedev as saying.
Medvedev took a dig at shale gas, which experts believe can shatter the prospects for traditional producers by offering a cheaper alternative, VTB Capital said. The break-even price for shale projects is as high as $200 per 1,000 cubic meters, he said without giving comparative figures for Gazprom’s output.
Shale gas supply could decline next year because drilling on these projects lost momentum this year, the VTB Capital analysts cited Medvedev as saying.
Gas talks with China might take another two years, with the pricing being the key stumbling block, he said.