Edison’s 450 million euro discount on Qatari LNG holds hope for Europe
Edison's win may reduce Italian gas prices; Qatar faces mounting backlash from European firms
September 12, 2012 11:00 by Reuters
Italian energy group Edison on Tuesday won in arbitration a 450 million euro ($578.07 million) discount on its liquefied natural gas (LNG) supplies from Qatar’s Rasgas, a verdict that paves the way for other European firms to secure cheaper energy and pass cost savings to cash-strapped consumers.
“The court decision has accepted the merits of Edison’s positions … the overall impact on 2012 accounts of Edison is estimated in 450 million euros,” the company said.
Edison, which last year successfully challenged Russian gas export monopoly Gazprom to reduce the cost of long-term gas supplies, can hold up as an example to peers its latest coup against the world’s biggest LNG exporting country, Qatar.
“It’s a breakthrough win as it paves the way for other European companies in the same situation to renegotiate gas prices with Qatar,” a source close to the arbitration process told Reuters.
“The price review success has the potential to reduce the final gas sale to businesses and households in Italy and also Europe as other companies might follow the same path in renegotiating the contracts with their suppliers,” the source added.
At issue is a decades-old system of indexing gas supplies to oil prices that has hurt European utilities because they are forced to sell the gas at a loss, losing billions of euros in the process.
Qatar, which liquefies its gas for export on tankers, adopted the same model set by Europe’s two biggest pipeline exporters Russia and Norway by linking gas supplies to oil prices.
The backlash against oil-linked contracts has gained ground in recent years as waning demand for gas and economic recession across Europe forces utilities to defend dwindling profit margins.
Gazprom agreed to amend long-term supply deals for Germany’s EON in July after the utility lost hundreds of millions of euros on contracts linked to oil prices.
The renegotiation of all EON’s oil-indexed gas contracts added 1.2 billion euros to its half-year profit compared with one year earlier, according to its financial statements.
OTHERS TO FOLLOW
Under the deal, Edison will receive a payment of 450 million euros from Rasgas, another source close to the arbitration said.
“And as of tomorrow Edison will be able to apply for LNG deliveries to the Rovigo terminal at the new price,” he added.
The decision, which favours Edison, reflects new realities in Europe’s third-biggest gas market as ongoing structural reforms have made oil-linked pricing of gas in Italy increasingly unsustainable, the source said.
“I suspect that someone will follow on Edison’s road,” he said, in response to questions about whether other Italian companies would challenge pricing terms set by suppliers.
Edison’s supply deal with Rasgas guarantees 6.4 billion cubic metres of supply annually over 25 years to Italy’s offshore regasification terminal in Rovigo.
In a statement, Edison said the Court of Arbitration of the International Chamber of Commerce had accepted the company’s arguments in the arbitration process with Rasgas which started in March 2011.
Arbitration cases were pending for Libyan and Algerian gas contracts, Edison said.
Rasgas also supplies Spain’s Endesa, Belgium’s Distrigas and the trading wing of France’s EDF.
($1 = 0.7785 euros) (Editing by James Jukwey)