E.ON Continues to Negotiate on Gas Supply Pricing

In an earning call, E.ON AG Chief Financial Officer Marcus Schenck said the company is "working hard" to secure more favorable terms of long-term supply contracts with suppliers such as Russia's Gazprom.

E.ON has initiated talks with Gazprom and other producers to make its long-term supply contracts more "flexible".
Chief Executive Johannes Teyssen said that E.ON does not insist on spot market price indexation for all of its contracts with Gazprom, denying that the company had requested such a move to the Russian natural gas monopoly.

Instead, E.ON seeks to change the terms of the agreements so that the lower gas price level will be better reflected, Teyssen said. He added that E.ON also wants to make indexation mechanisms more "intelligent", but declined to further elaborate.

"He added that successful renegotiation with gas suppliers should help improve margins in the wholesale gas business, and return that business unit  to an "adequate" profitability level in 2013.

Most of the long-term contracts with suppliers are crude-oil indexed, but while oil prices have recovered substantially over the past year, spot market gas prices remain poor.

The long-term gas supply contracts between producers such as Gazprom and their European customers are linked to the price of oil, but that pricing formula has attracted increasing criticism since crude peaked at over $140 a barrel in 2008.

Source: Newservices