Gazprom Warns Against Demanding Spot Prices

May 20, 2013

European gas buyers risk paying huge sums when demand surges if they insist that Gazprom sell at spot prices rather than via long-term deals linked to oil, a Gazprom executive has said, Natural Gas Europe reports.

He made the comments in an interview with Reuters. The Russian gas giant sells most of its gas linked to oil prices and does not want to increase spot-based pricing.

European companies have been making heavy losses due to the gap between the prices at which they obtain natural gas in Russia, which has been kept high by oil prices above $100 (€78) a barrel, and the lower spot prices at which they sell to end-users.

So major gas buyers are in talks or have agreed with Gazprom, Europe's biggest gas supplier, to add spot-based pricing to parts of their supply contracts.

"Things are getting more complicated and now negotiations are coming to an impasse," Sergei Komlev, head of contracts structuring at Gazprom, said in one of a series of Reuters interviews this week concerning gas.

Komlev would not identify the buyers with whom Gazprom was negotiating.

But he said a contract environment based solely on spot prices - those of gas traded freely on national hubs - could cause huge spikes in European gas prices on exceptionally cold winter days.

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