Gas trading through exchanges can replace long-term contracts of Gazprom

Gazprom will have to radically change its approach to pricing and gas trade to save its position on the European gas market, the Institute for Energy of the Higher School of Economics and Energy Research Institute of the RAS noted in its study. The company will gradually reduce the customer commitment "take or pay" and increase the spot price indexation, and in the future short exchange trading will replace the majority of its long-term contracts. A representative of Gazprom didn’t respond to the request.

In the past 10-15 years, Gazprom exported gas to Europe under long-term contracts pegged to oil, where 85% of the volume were sold under the condition of "take or pay". Gazprom believed that because of the falling domestic production and the demand from generating companies Europe would consume more imported gas. According to the forecast of the Higher School of Economics and Energy Research Institute of the RAS, in 2015, the production in Europe will decrease to 103 billion cubic meters as compared with the level of 2005 and reach 226 billion cubic meters. However, only since 2010 the consumption in Europe decreased by 137 billion cubic meters to 460 billion cubic meters in 2014, Europe made a bid for energy efficiency and renewable energy sources - since 2014 their use increased by 73%. And the share of gas in the power generation declined to 16% from 21% in 2005. The fall in the demand for gas led to the fact that in 2012 its import to Europe was lower than the obligations under "take or pay" to all importers. Buyers began to fill claims to arbitration courts, demanded to reduce these commitments and to bind the prices to spot indexes, not to oil, as in recent years gas at exchanges cost less than under long-term contracts.