Demand for natural gas in Europe has fallen this year as the economic downturn has forced consumers to cut back on expenditures. This desire to reduce expenses has led many nations to confront Gazprom (GZPM), complaining of the high prices that it charges for its gas, prices that are way above the average price on the spot market.
Gazprom is the largest supplier of natural gas to Europe, providing around a third of all gas to the market. European sales account for about 80% of Gazprom's income, which in turn provides a large portion of the Kremlin's yearly revenues, and so Gazprom is keen to defend its dominant position in Europe.
With this in mind, the state-owned energy company has bowed to pressure from customers and competitors and, according to a source from within the company, will cut its long-term contract prices for next year down to levels that are comparable with the general spot market prices.
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Gazprom is set to sell its gas at around $370 per 1,000 cubic metres, compared with the price of more than $400 which it has been charging this year.
A gas trader from Germany suggested that the new decision "puts Russian contracts into the money for summer, so they should export at top (capacity)."
As a result of the drop in price, Gazprom is expecting exports to increase from just over 140 billion cubic metres this year, to 152 billion cubic metres next year.
By. Joao Peixe of Oilprice.com
Joao is a writer for Oilprice.com More