Edison files suit against Gazprom

The other day it was reported that the Italian energy company Edison filed a suit against Promgas (a joint venture of Gazprom and Italy's Eni, each firm has 50%) with the Stockholm arbitration court. The motive is that the gas prices in 2011 to 2013 will bring loss to the company. The claim is substantiated by the fact that purchases of Russian gas on long-term contracts are much more expensive than buying this fuel on the spot market.

Till now Gazprom has agreed to make rather moderate concessions to its European consumers easing the take-or-pay conditions of long-term contracts (assenting to sell 15% of its gas at spot prices). Now consumers start using legal mechanisms that do not guarantee positive outcomes but can well exert psychological pressure on the Russian gas giant especially if the number of companies submitting such claims will be rising.

However, only the future situation with the demand for natural gas in the EU can tell us whether this strategy of European consumers has been efficient. If relative decline in consumption and surplus of cheap LNG continues, the attack on Gazprom may really result in price concessions by the Russian company. But if the EU economy enters the stage of post-crisis restoration with the declining gas production in Europe and growing demand for gas by Asian consumers, a quarrel with such a big suppler as Gazprom may prove to have been a wrong move.

By Stanislav Mitrakhovich, NESF leading expert