Athens and Moscow are looking for a for softer prices “formula” on Russian gas
The background of the negotiations for the supply contract of Gazprom-DEPA Commercial – What does the meeting between Putin and Mitsotakis signify – New type of multiannual agreement on the table
In the shadow of the energy crisis in Europe but also of the frosty EU- Russia relations, because of Nord Stream 2, Athens and Moscow are in negotiations for the gas supply contract between Gazprom and DEPA Commercial.
The Greek government is trying to provide discounts to gas consumers in 2022, as fuel prices continue their frantic course. Yesterday at the Dutch hub the TTF jumped to 100 euros/MWh, while, at the same time, the government is trying to ensure a more competitive energy mix for electricity generation by betting on the long-standing relationship of trust that has been built between Greece and Russia.
On the other hand, Moscow is facing the demands of Brussels for the independent operation of the Nord Stream 2 pipeline, which will transport large quantities of Russian fuel to Germany and the EU. The project has been blocked and Gazprom is losing further strength in Europe’s energy market.
Under the aforementioned conditions, yesterday Vladimir Putin and Kyriakos Mitsotakis met for the first time. In Sochi, Russia, the Greek Prime Minister saw for the first time, in this capacity, the powerful President of the Russian Federation.
According to information, the issue of gas supply and prices was also on the table, something that was made evident from their statements, although both men sought to keep the issue low-key.
Gazprom covers about 40 to 45% of the country’s annual gas needs. Around 2 billion cubic meters are bought by the state DEPA Commerial and a total of 1 billion euros are supplied by the Kopelouzos group and Mytilineos. The quantities that arrived in Greece in this 11 months broke every record.
Putin and Mitsotakis reportedly focused their discussions on the issues of costs and of uninterrupted gas supply from Gazprom to the Greek market, under the weight of increased demand, due to weather conditions and reduced stocks in the EU.
The Russian President guaranteed security of supply, as his official statements showed.
However, the subtle issue that the two leaders have to deal with, in order to find a political solution, is the pricing formula of the quantities DEPA Commercial buys from Gazprom. Both showed intentions to find a solution. Kyriakos Mitsotakis stressed that “despite the volatile market conditions, any adjustments to the gas supply should not deviate significantly from the existing agreement”. Vladimir Putin, for his part, stressed: “We are fulfilling our good faith and all our commitments. We are ready to upgrade our relationship in this area.”
According to information, the negotiations between the two companies, DEPA Commercial and Gazprom, have been going on for about two to three months and concern 2022.
It is recalled that their contract expires in 2026, but they negotiate, every year, the prices and other terms on this multiannual agreement.
The Russian company started the discussions with the intention of changing the way of pricing for the quantities of natural gas next year. He indicated as a costing basis the prices of the Dutch trading platform TTF for all the cubic meters (100%) that he will sell to DEPA Commercial. And this change would increase the cost of supply excessively in relation to the previously agreed ones that want in 2022 the pricing to be done according to the course of the prices of crude oil (oil indexed).
Sources say that the management of the public company rejected this proposal and especially at a time when TTF gas is breaking all records.
It is worth emphasizing that, for the years 2020 and 2021 ,DEPA Commercial, having opened the issue of pricing change, succeeded the formula to take into account the determination of the import price by 40% TTF prices and by 60% crude oil. TTF gas, in those, years was very low. And so it was in the interest of the Greek company and its customers (households and businesses).
The day before yesterday, the Minister of Environment and Energy, Kostas Skrekas, paid a visit to Gazprom’s headquarters in St. Petersburg. His meeting with the President of the company, Alexei Miller, had as an objective the continuation of the negotiations, aiming to better terms than the Russian company. That is, to succed, in 2022, a pricing ratio between the TTF and the oil indexed.
In addition to the aforementioned issue of the negotiations between the two sides, according to information, it is also said that an issue has been raised for a different gas supply agreement.
This, according to sources, is discussed to have a long-term effect as well. Moreover, it is said that the extension of the existing DEPA Commercial-Gazprom contract, that expires in 2026, or the change of the current conditions, were also discussed, so that, by the end of it, a price framework that will not change on an annual basis, will be agreed.
In any case, government sources noted, yesterday, that the negotiations are still ongoing and “when there is news, the relevant announcements will be made”.