Third German company obtains a gas discount from Gazprom

A new client of Gazprom in Germany – Verbundnetz Gas (VNG AG) – has gained a gas discount from the monopoly. The company is one of the largest gas suppliers in Eastern Germany and Gazprom holds 10.5% of its shares. However, analysts note, the monopoly remains very selective, thus EU will keep criticizing it for extremely high prices. Last year German VNG AG purchased Russian gas for $286 per 1 thousand cubic metres, Interfax reported. The current price is not specified. VNG purchases gas not from Gazprom Export directly, but from German JV of Gazprom and Wintershall – WIEH. Gazprom, Gazprom Export and VNG refused to specify the details of the arrangements. Germany is the largest European export market of Gazprom (34 billion cubic metres of gas in 2010). Despite the fact, that VNG is not the largest consumer of Gazprom (about 6.4 billion cubic metres per year), the monopoly had even tried to obtain control. VNG is actually a monopolist at the market of Eastern Germany, it owns a pipeline network (7 thousand km, 2.3 billion cubic metres of gas per year) and four underground gas storages (two are under construction). However, the share of Gazprom in VNG doesn’t exceed 10.5% (48% are held by German Public Utility Holding EWE). Vitaly Kryukov from IFD-Capital says it is not surprising, that VNG tried to obtain a discount from Gazprom, as “all European consumers of Gazprom do it”. They all don’t agree with connection of gas price to oil price and insist on introduction of a spot component to the contracts, as gas at spot market is by $100 cheaper than pipeline gas. The main German clients of Gazprom - E.ON Ruhrgas and Wingas – gained a reconsideration of their contracts with Gazprom at the beginning of 2010, the spot component in their contracts makes up 16% (according to Interfax). Analysts have already criticized Gazprom for its reluctance to reconsider the contract formulae with its European clients: export proceeds of the monopoly grow, but its share in the European market lowers. Clients of Gazprom either initiated arbitration procedures due to the arguments about prices (e.g. Italian Edison, German RWE and E.ON) or threatened Gazprom with such trials (Lithuanian and Polish authorities). However, not only Gazprom but Russian authorities had claimed they were not going to change the connection of gas price to oil quotations. Gazprom is not afraid of arbitration procedures, as the monopoly has alluded, that such trials last more than one year and the verdict about a concrete case has never been a precedent for analogous cases. Analysts don’t undertake to assess the losses of Gazprom from the reconsideration of the contracts with VNG, however, Kryukov says, “proceeding from purchase volumes of VNG, it can hardy be something considerable”. However, the example of VNG is revealing and it becomes clear, conflicts with clients in Europe will go on, he adds. On one side, Gazprom is ready to make concessions to some of its clients, e.g. Italian ENI (the main partner of the monopoly in south Stream project) or German RWE (Gazprom plans to found a power industrial JV with the company), Maksim Shein from BKS reminds. However, the EU will always try to press upon the monopoly from declination of transeuropean status of South Stream to inspections of Gazprom offices if Gazprom goes on with its selectivity and refuses to change its fundamental pricing principles. Source: http://www.kommersant.ru/doc/1804839 Translated by Alexandra Utyasheva