German utility E.ON AG (EOAN.XE) continues to talk with its largest supplier of natural gas--Russia's Gazprom OAO (GAZP.RS)--in an effort to adjust the commercial terms of supply contracts, two people familiar with the matter told Dow Jones Newswires.
German utility E.ON AG (EOAN.XE) continues to talk with its largest
supplier of natural gas--
Russia
's
Gazprom OAO (GAZP.RS)--in an effort to adjust the commercial terms of supply
contracts, two people familiar with the matter told Dow Jones Newswires.
One of the persons said the negotiations are expected to continue at least
until the autumn of this year.
If both companies fail to reach an amicable agreement on new commercial terms
of the supply deals by then, the matter could be transferred to an
international arbitration court, the person added.
The comments come a day after German media reports said that the talks between
E.ON Ruhrgas--the natural gas business of the Duesseldorf-based utility--and
Gazprom have broken down.
Like other European natural gas importers, E.ON has been in talks with
suppliers for months.
Profit margins at E.ON's wholesale gas have been under severe pressure due to
the disconnect between long-term, oil-indexed procurement prices and the lower
selling prices to customers.
The negotiations are delicate with billions of euros at stake for both
companies.
E.ON sources about one quarter of its gas from
Russia
and
in light of the around 20 billion cubic meters it buys there, even small price
reductions would result in massive revenue shortfall for Gazprom.
The German utility, meanwhile, previously described the gas wholesale business
as its "biggest operating risk" and pledged to push for price
reduction of long-term supply contracts in talks with producers.
In May, Chief Financial Officer Marcus Schenck said E.ON had managed to pushed
through price reductions for a large chunk of its long-term gas supply
contracts with producers that should shield the company from losses.
At the time, however, Schenck had added that E.ON still expects it wholesale
gas business to record a loss of around EUR1 billion in 2011.
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