Italy's Eni Wins Price Cut for Russian Gas

posted by Joseph Keefe May 23, 2014

Eni wins important change to indexation mechanism; deal backdated to start of 2014. Deal comes after Ukraine crisis and China gas deal.

Russia's Gazprom reached an agreement with Eni on Friday giving the Italian oil major a cut in the price it pays for Russian gas, days after Moscow clinched a groundbreaking gas deal with China.

The agreement, signed by the groups' CEOs in the Russian city of St Petersburg, envisages "an important change" in the price-indexation mechanism used in the contracts to align prices fully with the market, Eni said in a statement.

Eni periodically renegotiates its long-term gas contracts with Russia and other major suppliers to take account of the mismatch between spot prices and long-term prices linked to oil.

Eni, one of Europe's biggest gas wholesalers, previously renegotiated its contracts with Gazprom last year, securing a price cut estimated to be under 7 percent.

Eni's head of exploration and production, Claudio Descalzi, took over as CEO of the Italian oil major earlier this month and some analysts had expressed concern over gas contracts with Russia because of the growing tension over Ukraine.

The crisis between Europe and Russia has driven some European gas importers to seek alternatives to what they view as uncertain Russian gas supply.

Earlier this week, Gazprom sealed a long-delayed gas deal with China in a major pivot of Russia energy flows to Asia. The arrangement with Beijing would affect prices in Europe, the chief executive of the Russian company said.

Italy, which imports around 90 percent of its gas needs, received some 40 percent of its imported gas from Russia last year.

Eni, controlled by the Italian government, said the terms of the agreement with Gazprom would be backdated to the start of 2014.

Under the agreement, conditions for recouping prepaid gas from Gazprom would be "significantly enhanced" in 2014, it said.

In February, Eni agreed to revise its long-term gas supply contracts with Norway's Statoil (STO) while last year it renegotiated its long-term supply contracts with Algeria agreeing to cut its imports.