* Russia's Putin intervenes in Europe gas price disputes
* Gas dispute is becoming increasingly political
* Customers try to benefit from new supply sources
LONDON, Sept 12 (Reuters) - Relations between natural gas
suppliers and consumers in Europe have come to a crunch point
over pricing as buyers seek to wriggle free of long established
but costly contracts and benefit from newly available sellers
elsewhere.
The clash is becoming more political as sparks fly between
the European Union and its leading gas supplier Russia.
Major natural gas exporters like Russia, Norway or Qatar
sell mostly under long-term contracts that are linked to oil.
Because oil prices have stayed high despite economic
turmoil, European power and gas suppliers are being squeezed as
they buy gas under long-term deals linked to oil, while having
to sell it to customers at lower retail prices linked to the
freely traded spot market, such as Britain's National Balancing
Point (NBP).
In several recent contractual renegotiations Gazprom
, the world's biggest exporter of pipeline gas, and
Qatar, leader of liquefied natural gas (LNG) exports, have given
in to customer pressure and reduced their prices.
Customers are also due to renew contracts with Norway's
Statoil.
French bank Societe Generale said this week that
it expected oil-indexed gas supplies to see a lower weighting
than spot indexation in the pricing structure of European gas
supply contracts by 2014.
"Oil indexation is facing major challenges. The old system,
whereby long-term oil-linked contracts were signed to ensure
both security of demand and security of supply and spot trading
provided additional volumes, is facing a step change," SocGen
analyst Thierry Bros said.
Oil-indexed gas pricing began after gas was discovered in
the North Sea and the Netherlands in the 1960s and sales
contracts were priced against competing heavy fuel oil and
heating oil.
The backlash against oil-linked contracts has gained ground
as waning demand for gas and economic recession across Europe
forces utilities to defend dwindling profit margins.
Discoveries of natural gas reserves in East Africa,
Australia, the Mediterranean Sea, as well as the shale gas boom
in North America are also expected to help push natural gas
above coal as the second biggest fuel source by 2030 and later
could even challenge oil.
These discoveries not only pose a challenge to pricing
models of LNG export leader Qatar, but by delivering the
super-cooled gas by ship to ports across the globe they also
threaten the longstanding dominance of pipeline powers such as
Russia or Norway.
"Europe will, in the long term, decrease the region's
dependence on supplies from Russia and the Middle East, thus
reducing their dominance in energy markets," Frost & Sullivan
Consulting Analyst Michael Mbogoro said in a report published on
Wednesday.
"It is likely to also give rise to new geopolitical
alliances at the expense of old," he added.
RUSSIA UPS THE PRESSURE
The stand-off between suppliers and customers came to a head
this week when Russian President Vladimir Putin issued a decree
protecting Gazprom from an EU anti-monopoly investigation.
It is not clear how the European Union will react.
"This is basically the Kremlin tightening its control over
Gazprom to ensure that the Russian state has final say over any
discounts that the company may agree to with its European
buyers," said Andrew Neff, senior energy analyst at IHS Energy.
Analysts say the Kremlin's involvement will shift talks to a
political level because European customers do not want to ruin
their relationship with their dominant gas supplier.
"If European companies are going to go running to the
European Commission to pressure Gazprom, the Russian government
is going to make sure that Gazprom has the full protection of
the state, with the result being that these commercial
negotiations are going to shift to a political sphere far more
overtly as a result," Neff said.
The European Commission started an anti-trust investigation
focused on Gazprom's policy of linking contract gas prices to
oil prices last year that have included raids of Gazprom
subsidiaries in Europe.
"If Gazprom imposes too high prices, that is an
abuse because that its unfair pricing. It is not a case of the
Commission wanting to fix prices, it is the Commission making
sure that the company does not abuse its dominant position and
that conditions in the market are fair," said Serge Durande, an
antitrust lawyer at Brussels-based Bird & Bird and formerly a
senior official at the European Commission's competition unit.
"It is for Russia to understand how the legal system works
here in the EU," he added.
The European Union receives around a third of its gas from
Russia, but Gazprom is even more reliant on European revenues,
with around 80 percent of its gas being sold to Europe.
(Additional reporting by Foo Yun Chee in Brussels and Nina
Chestney in London, editing by William Hardy and Richard Mably)
