Poles join queue threatening Gazprom over gas prices

By bne IntelliNews October 5, 2011

Tim Gosling in Prague -

Polish state-controlled oil and gas company PGNiG has resurrected threats to take Gazprom to international arbitration unless the Russian company agrees to cut the price of its gas, reports Prime.

The Poles are just the latest of many major customers to resume demands that Russia lower prices as the global economy slows again. The EU has also waded in, with antitrust investigators on September 27 raiding the offices of Gazprom's subsidiaries in Germany, Czech Republic, Hungary, Poland, Bulgaria, Latvia, Estonia and Slovakia to probe whether the company is cooperating with regulators.

Like Ukraine and Turkey, PGNiG has been trying to get Gazprom to reduce the price of Russian gas since 2010. Company officials were in Moscow on Tuesday, October 4 to talk over their demands for a significant change in the pricing formula. It's reported that PGNiG is seeking to cut its gas bill by 10%.

Specifically, the Polish company wants to return to the formula that was used up to November 2006. Changes sparked by a rise in Polish demand saw the price rise 11%. In early March, PGNiG requested Gazprom reduce the price by 10%, having spent $3.3bn on Russian gas in 2010. PGNiG said at the time that it hoped to shrink its gas bill by $300m.

Earlier in the week, Turkey - the second largest buyer of Russian gas - announced it would not renew its 25-year gas contract with Gazprom because of its refusal to renegotiate the pricing formula. Turkish Energy Minister Taner Yildiz complained that the price of Russian gas has risen 39% in the last 29 months. The Russian company will now be left to negotiate new contracts with private Turkish importers.

Meanwhile, Ukraine is still locked in talks to try to persuade Moscow to lower prices. Russia is demanding either control of the country's gas pipelines or that it join its Customs Union with Kazakhstan and Belarus before it will agree.

However, in the last few months Moscow has budged in certain cases by offering price reductions to Greece and Belarus - the latter in return for a cut-price purchase of its gas pipelines leading to Europe.

At the same time, Gazprom is facing the threat of legal challenges from several private European customers that have been pestering Moscow to renegotiate prices since the gas glut which hit Europe in 2009.

In the first half of this year, it looked as though Gazprom may have ridden the storm out, as gas prices recovered on the back of rising demand in Asia for the liquified natural gas from the Middle East that has been flooding the European market. However, with global economic growth looking increasingly sluggish and the unseasonably warm weather in Europe, the Russian company will probably see demand for its gas fall again.

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