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Gazprom won' t budge on gas export prices

BY TATYANA SHUMSKY

MOSCOW -- Gazprom is standing firm on how it prices exports for "the foreseeable future," says Deputy CEO Alexander Medvedev. Gazprom is a major supplier to Europe. However, the company has lost ground to competitors abroad that are willing to adopt more flexible pricing and charge less.

Still, "We are not planning to make any additional changes," Mr. Medvedev said.

European competitors such as Norway' s Statoil are chipping away at Gazprom' s market share by offering European clients more flexible contracts and prices not linked to oil, analysts said.

Gazprom, which links its price to oil, saw its gas sales to the European Union fall 9.1% last year from 2011, while Statoil delivered record gas volumes to the region, growing its sales by around 10% in 2012, after the Norwegian company linked many of its contracts to a natural gas benchmark. Natural gas prices at European hubs have been weaker than oil prices.

But Mr. Medvedev said Statoil' s gains came at a cost. The company grabbed market share at the expense of revenue, he said. "We are not hunting sales volumes, we are hunting for cash," he added.

Earlier this week, Russian President Vladimir Putin signaled he is willing to end Gazprom' s monopoly on Russia' s natural gas exports by allowing rival companies to ship LNG abroad. The move is being considered because Russia, despite having the world' s largest gas reserves, continues to lag behind other exporters in tapping the high-value LNG export market.

Gazprom believes the Kremlin' s efforts to liberalize Russia' s gas exports could be a "positive development," so long as new Russian exporters don' t flood the market with cheap LNG, Mr. Medvedev said. "It' s not just a question to give the right" to export, he said, "but also to give certain responsibilities" for not driving prices down to unprofitable levels for all. "That' s why President Putin asked to analyze the concept and prepare suggestions. And obviously Gazprom' s suggestions will be taken into account," Mr. Medvedev said.

The deputy CEO also denied Gazprom was pressured by Russian officials to discount natural-gas exports for Bulgaria to win the Bulgarian government' s approval of the South Stream gas pipeline project. The project will take gas directly to southwestern Europe, bypassing traditional transit hubs in Ukraine and Belarus, which charge fees for transferring gas.

The Kremlin had "no influence of the South Stream process on our commercial discussions," Mr. Medvedev said. Instead, Gazprom and Bulgaria agreed on lower prices because of declining gas demand in Europe, slow European economic growth and the influx of cheap coal from the United States as an alternative heating source.

Mr. Medvedev added it was a coincidence that both deals, the revising of Bulgaria' s prices and the South Stream agreement were signed on the same day. "It wasn' t planned to happen on one day," he said, adding the signing of the South Stream agreement was delayed by the death of Patriarch Maxim, the head of Bulgaria' s Orthodox Church, on 6th November last year. Mr. Medvedev said that when the pricing accord was reached, both parties saw they could sign both deals on one day, 15th November, and "economize on the transport costs."

But while some Gazprom customers like Bulgaria and Poland saw the prices reduced via negotiations last year, other Gazprom customers, like the Ukraine, were not so fortunate.

Gazprom served Ukraine with a $7 bn bill for gas in 2012. Ukraine officials have balked at paying, calling the charge unreasonable. But Mr. Mevedev said, "A contract is a contract. This bill is issued in accordance with contractual terms." He added that Gazprom is in "positive discussions" with Ukraine, though no deal has been reached.

Dow Jones Newswires

02/14/2013

 

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