ENI WON GAZPROM
Italian oil major Eni has won a major concession from Gazprom, after the Russian group agreed to use spot market gas prices rather than oil indexation in its long-term gas supply contracts.
Gazprom, which signed a $400bn, 30-year supply deal with CNPC of China this week, had previously resisted pressure from its European customers to remove the oil link from its supply deals and use hub prices instead.
Over the past few years, several buyers of Russian gas have taken Gazprom to arbitration to negotiate price reductions.
Eni said it had signed an agreement with Gazprom on Friday to revise the terms of its contracts involving a reduction in prices and "an important change in the price indexation to fully align it with the market".
The revisions also allow Eni to recover gas it has already paid for but not received under take-or-pay contracts. It said the changes will apply retrospectively to the start of 2014.
Bernstein Research said oil-linked prices have averaged $10.95 per 1,000 cubic feet this year, while the Italian spot price for gas has averaged $9.87/mcf, so switching to spot prices in its Gazprom contracts could add €506m to the operating profit of Eni's gas and power division.
The business made an average annual loss of €0.15bn between 2011 and 2013 as the price at which Eni sold its gas fell more quickly than the price it bought the gas for on its oil-indexed contracts. But Bernstein said the contract renegotiations with Gazprom and other suppliers would return the business to profitability.
Eni announced in March that it had also renegotiated its long-term supply contract with Statoil of Norway, without divulging the new price. It has also revised its deals with Algeria, another major gas exporter to Europe.
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