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GDF Suez in Gazprom contract talks

GDF Suez is renegotiating long-term, oil-linked contracts with Gazprom and could take the Russian monopoly to arbitration, chief executive officer Gerard Mestrallet said on Thursday

France’s GDF Suez is the largest gas buyer in Europe and has a gas portfolio of over 110 billion cubic metres (cm). Most of the gas is bought under oil-linked contracts, which have soared in line with crude prices, while hub gas prices remain flat in comparison.

Arbitration an option

GDF Suez confirmed it was renegotiating 2012 contracts with Norwegian and Dutch suppliers, as well as Russia, and did not rule out seeking arbitration in similar moves to German utilities E.On and RWE.

“We have not decided to move to arbitration. Talks with Gazprom are, so far, constructive and we hope to reach an agreement without arbitration. But if we can’t find an agreement, we don’t exclude any options,” Mestrallet told Petroleum Economist on the sidelines of a GDF Suez media briefing.

“The best solution would be long-term contracts more market indexed. That’s obvious,” he said. Mestrallet added that GDF Suez would be open to deferring unwanted deliveries to a later date as a means of solving the issue. He also acknowledged that the spread between oil-linked and hub prices was decreasing and the gas glut could disappear by late 2013 or early 2014, indicating a re-convergence of the two gas prices.

In 2009, Norway was GDF Suez’s largest gas supplier, providing 23% of its supplies, with Netherlands providing 15% and Russia 14%.

Capex plans

GDF Suez plans to stick with capital expenditure of €11 billion ($15.2 billion) a year until 2013, despite market volatility in the eurozone, Mestrallet said. French banks were the latest organisations to come under fire, as the eurozone battles against Greek, Italian, and Spanish debt problems, increasing volatility in global markets.

The company is also in talks with Italy’s Eni about selling its 10.4% stake in the Elgin/Franklin gas fields, in the UK North Sea, valued at around €600 million. GDF Suez aims to sell €10 billion of assets by 2013 to help reduce debt and finance new projects.

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