Wintershall AG, the upstream oil and gas unit of German chemicals company BASF SE (BAS.XE), said Friday it is still negotiating with gas giant Gazprom OAO (GAZP.RS) over prices and volumes, but insists on more flexibility from the Russian gas exporter.
Wintershall AG, the upstream oil and gas unit of German chemicals
company BASF SE (BAS.XE), said Friday it is still negotiating with gas giant
Gazprom OAO (GAZP.RS) over prices and volumes, but insists on more flexibility
from the Russian gas exporter.
"We are in the end stage of negotiations with Gazprom," said
Wintershall Chief Executive Officer Rainer Seele, speaking on the sidelines of
the official launch of the construction of the Nord Stream pipeline, which will
ship natural gas pipeline to from
Russia
to
Germany
under
the
Baltic Sea
.
"My main priority in the discussion with Gazprom isn't the pricing, Seele
said. "The problem is with volumes, because the market is
oversupplied," he added.
European gas markets are currently heavily oversupplied as the economic
downturn weighed on demand, in particular from industrial customers that scaled
down production during the recession.
Additionally, increased amounts of unconventional gas--such as shale gas and
liquefied natural gas--entered markets across the world, which further exacerbated
the oversupply situation.
Seele said his company will need more flexibility from Gazprom regarding the
pricing of long term contracts, which are linked to the price of oil.
"We have a very strong customer market, and the customer ultimately decides
what kind of pricing he prefers," Seele said.
Asked whether the long term gas contract price link to the price of oil is
outdated, Seele said: "I don't care whether it's indexed to oil or to
something else. At the end of the day, it has to be a price level which is
competitive for the customer."
Over the past few months Gazprom has renegotiated gas supply contracts with
European customers who sought more flexibility from the Russian company in
terms of pricing and volumes. One concession Gazprom has made was to partially
drop the oil-price link of gas-delivery contracts and instead index some
contracts to spot market prices.
The move signals a major shift for the Russian gas producer, as it tries to
defend its share of the European market amid lower demand and an increase in
production of unconventional gas.
State-controlled Gazprom supplies more than a quarter of
Europe
's gas
needs, but saw demand in
Europe
--its
key export market--plummet last year amid an economic crisis. European
importers of Russian gas have criticized the company for lack of flexibility in
its long-term contracts.
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