Gazprom’s oil-linked pricing mechanism is under further pressure, as GDF Suez is also trying to renegotiate gas contracts with the Russian company:
France’s GDF Suez has joined other major European utilities in entering talks with Russia’s Gazprom to renegotiate the price of oil-indexed gas supply contracts, the head of economic research at its trading arm said.
“We are negotiating like the other major utilities in Europe,” said Evariste Nyouki at an energy trading conference.
He added the utility had not started an arbitration process, unlike Germany’s E.ON, which kick started legal procedures to resolve the dispute in August.
The gap between US gas prices and world oil prices is approximately 75 percent of the oil price. Differentials between oil equivalent and European spot gas prices are far narrower, but they are wide enough. As US gas export infrastructure–which depend crucially on US government approvals (a scary thought given this administration’s energy policies)–comes on-line, however, European and world gas prices will come under heavy pressure, and the already obsolete oil-linked pricing mechanism will become completely untenable.
So expect even more ludicrous Gazprom attempts to rationalize the irrational in the months and years to come. These will be entertaining, in a perverse sort of way, but ultimately futile. Economics will out.