Poland seeks gas-price cut from Gazprom in contract negotiations

By MACIEJ MARTEWICZ and MAREK STRZELECKI
Bloomberg

Polskie Gornictwo Naftowe i Gazownictwo SA, Poland’s dominant natural gas distributor, started talks with OAO Gazprom to cut the price of the fuel from Russia’s exporter under a long-term supply contract.

State-owned PGNiG, which buys as much as 10.2 billion cubic meters/year of gas from Russia or two-thirds of the country’s consumption, is seeking a deeper price cut than a 15% reduction obtained two years ago, CEO Mariusz Zawisza said in September.

The company may seek a court arbitration unless it reaches an agreement within six months, it said in a statement on its website today.

While PGNiG says the price it pays Gazprom in long-term contracts linked to oil has become more expensive than fuel on European hubs, the Russian company argues that the indexation is needed to ensure investments in infrastructure.

Poland took steps to diversify supplies by raising import capacity from the European Union and building a liquefied natural gas terminal.

“The decision to start negotiations was made following significant changes that took place on the European energy market in recent years,” the Warsaw-based company said.

Ukraine Crisis

The negotiations come amid a worsening conflict in east Ukraine even after Russia and Ukraine agreed a gas deal last week. PGNiG has been receiving less gas than it requested from Gazprom since the start of September with the Moscow-based company citing pre-winter maintenance on pipelines as a reason.

“Our contract, as any other with our foreign clients, foresees the option to revise pricing conditions,” Gazprom said in an e-mailed statement. “Such mechanism is a routine clause aimed to provide the adequacy of contract terms to the current market realities and reflect the objective long-term changes on gas markets of particular countries.”

Poland is able to buy 2 billion cubic meters of gas via a pipeline from the Czech Republic and the Lasow link with Germany. It can also use the Yamal pipeline for reverse flows and import as much as 5.5 billion cubic meters from western Europe.

Next year the country will open its first LNG terminal on the Baltic Sea, which will supply as much as 5 billion cubic meters/year. PKN Orlen SA and Grupa Azoty SA, Poland’s biggest gas users, as well as PGNiG, met with US producers in September to talk about gas deliveries to the terminal.

Lower Prices

Neighboring Lithuania, which has been fully dependent on Gazprom supplies, got a 23% price reduction for the Russian fuel in May, just months before opening its floating LNG facility. Lithuania had paid about 1,200 litai ($484) per 1,000 cubic meters for Russian gas before the cut, according to the Verslo Zinios newspaper.

The average price of Russian gas delivered to the German border was about $371 per 1,000 cubic meters in September, according to data from the International Monetary Fund. In 2012, Gazprom reduced PGNiG’s price from about $570 a 1,000 cubic meters under the gas delivery contract through 2022.

Dutch next-month gas, a benchmark for mainland Europe, fell 0.7% to 22.70 euros per megawatt-hour ($245 per thousand cubic meters), according to broker data compiled by Bloomberg.

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