German and Italian energy companies have begun renegotiating some of their long-term contracts with the Russian energy titan Gazprom as natural gas prices sag along with demand, despite an increase in oil prices.
The decision by E.ON Ruhrgas of Germany and Eni of Italy signals a major shift by some of the biggest European energy companies, which have long relied on such deals to ease planning for major investments and avoid volatile price swings on what had been a very limited spot market.
But in recent months, the companies have been unable to sell gas to consumers at the high prices they had earlier negotiated with Gazprom, a state-owned energy monopoly. The spot-market price for natural gas last month was 30 percent lower than the long-term contracts, according to analysts.
Several factors seem to be at play. Demand has fallen because the United States is developing natural gas from shale deposits and the Europeans are using less, despite an unusually cold winter, largely because of the weak economy, which has idled much industrial production. More European consumers are also switching to renewable fuels and have become more energy-efficient.
With more gas entering the spot market — and more gas exchanges being established — the competition has increased.
Some analysts said the development could signal a slow unraveling of the link between oil and gas prices. The price of gas is linked to the price of oil, but with a time lag; even though oil prices have recovered since the deep fall during the 2008 global financial crisis, gas prices have remained depressed.
Graham Freedman, a senior analyst at the energy consulting firm Wood McKenzie, said links between gas and oil prices were coming under pressure. “The renegotiations by buyers and sellers involved in long-term contracts shows that the present basis of pricing” for natural gas is coming from the spot market, rather than oil markets, he said.
As a result, several big European energy companies renegotiated their contracts with Gazprom this month. These contracts are based on take-or-pay arrangements that require customers to pay for a certain volume of gas even if they do not take full delivery.
E.ON Ruhrgas said Wednesday that part of the purchase of gas from Gazprom would in the future “no longer be coupled to the oil price but to the spot gas price.” A spokesman said the amount of gas renegotiated with Gazprom was in “the lower double-digit percentage area.”
Eni also renegotiated part of its contract with Gazprom. Eni’s chief executive, Paolo Scaroni, said the revisions would allow the company to react to the big changes in the European gas market. Some utilities, like RWE in Germany, which recently entered the gas market, have combined long-term contracts with buying on the spot market.
Alexander Medvedev, a deputy chairman of Gazprom, confirmed last week at a news conference that the company had renegotiated the contracts with European companies because it had to “take into account the trends in the European market and the crisis.”
He added, however, that “the basic principles” of the long-term contracts would remain unchanged.
Analysts said Gazprom had no choice but to become more flexible in its pricing arrangements.
“Demand is changing in Europe,” said Josef Auer, an energy expert at Deutsche Bank Research. “There is now more gas-to-gas competition, which means the long-term contracts will be under pressure to adapt. Renewable energy, too, is becoming more important so Gazprom cannot ignore these trends.”
The sharp fall in gas demand has already had repercussions for Gazprom’s big investment projects.
This month, Gazprom said it would postpone the start of its giant Shtokman field in the Arctic by three years, to 2016, after demand for its gas slumped in Europe and the United States cut liquefied gas imports because of rising shale-gas production. The Shtokman fields are being developed by Total of France and Statoil of Norway.