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    Lithuania and Gazprom to Square off in Gas Price Dispute in Stockholm

Summary

As Lithuania is looking forward to the opening of the hearings this month over the possible Gazprom gas price overcharge, Poland and other Eastern European states will be closely monitoring litigation

by: Linas Jegelevicius

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Top Stories, News By Country, Poland, Baltic Focus

Lithuania and Gazprom to Square off in Gas Price Dispute in Stockholm

More EU countries are likely to get tagged

As Lithuania is looking forward to the opening of the hearings this month over the possible Gazprom gas price overcharge at the Stockholm Arbitration Court, it will not be alone in the Swedish capital - Poland has also lodged in with the court a complaint against the Russian gas giant over the same in May.

Some experts believe the litigation by the two neighbor countries, coupled with the EU’s unfavorable antitrust ruling against the Russian company, will trigger more EU countries to file similar lawsuits.

“Lithuania and Poland, obviously, were not the only Eastern European states being overcharged for the Gazprom gas suppliers. Lithuania must be credited for having stood up against the Gazprom gas price injustice. With the Lithuanian lawsuit about to be taken on and the judicial outcome seen quite positive for the plaintiff, the Poles and other Eastern European countries will definitely be closely watching the process and learning the lessons,” Arvydas Sekmokas, the former Energy Minister of Lithuania and now an independent energy consultant, told Natural Gas Europe.  He added: “I’m pretty sure we will see soon more countries getting tagged in this kind of litigation.”

Among those to come forward with the kind of claim, he believes, is likely Slovakia, the key player now in reverse gas flow to Ukraine.

“The country’s importance now (due to the reverse gas flow) is high and it is likely to use it as a means to re-negotiate the gas price with Gazprom. If talks do not work out, Stockholm might be an option for it, as well as some other countries that have already positive rulings against the company,” the expert pointed out.

Slovakia had paid Gazprom among the highest prices for the gas supplies in the EU until recently. Although the country has been given a discount, the Slovak government insists there’s space for an even better deal.

Over the last few years, the Russian gas giant has revised the terms of contracts with a number of European customers after unfavorable judicial decisions.

In the summer of 2013 Gazprom, for example, was told by the Vienna International Arbitral Center to reduce its price for gas supplies to Czech Republic’s RWE Supply & Trading CZ.

Earlier, in 2011-2012, Gazprom had agreed after lengthy negotiations to curtail the gas prices by an average of 10 percent for French GDF Suez, German Wingas, Slovak SPP, Turkish Botas, Italian Edison and Sinergie Italiane and the Austrian Econgas.

The reason behind the cuts were the fall in price of gas on the spot market through the expansion of production in the United States.

Filing for arbitration with the Stockholm Arbitration Court, Poland’s largest gas distributor PGNiG said it was looking to change the pricing of their long-term contract.

“The steps taken by PGNiG aim to bring the contract in line with the current conditions on the European natural gas market,” the Polish company said in a statement, adding, “the claim doesn’t exclude a negotiated outcome or a new deal with the supplier.”

PGNiG appealed to the Stockholm court after talks with Gazprom which started in November last year failed. The two companies, reportedly, couldn’t find a common ground on a cut in gas prices for Poland.

Recznik Prasowy, of the PGNiG Communications Department, did not elaborate to Natural Gas Europe on the details, but noting “PGNiG became entitled to initiate arbitration proceedings in early May 2015 following the expiry of six months from the date of the request to renegotiate the contract’s price terms.”

Meanwhile, Arkadiusz KrasnodÄ™bski, the managing partner at Dentons, a Warsaw-based law firm specializing in energy and natural resources, told Natural Gas Europe “the firm was acting for Gazprom in Poland” and therefore he was not in a position to answer any questions regarding the matter.

Until recently the average price Poland paid to Gazprom was, reportedly, around $550 per thousand cubic meters.

It was subsequently slashed by 15 percent, but, still, is estimated to be one of the highest in Europe.

Under the current contract, Russia will supply 10.2 billion cubic meters of gas to Poland yearly until 2022 with the total gas consumption by the country put at 14 billion cubic meters.

Poland believes the fall in oil prices is a reason for demanding a bigger reduction, especially that the Russian gas price formula is based on the oil price, which is still on the lower end.

Poland is also against the “take or pay” system which obliges customers to pay for deliveries they may not necessarily need or use.

Sekmokas, the expert, believes, in the light of the aforementioned concessions, adverse EU anti-trust ruling and new energy geopolitics, may be forced to nod to the requirements of the European Union’s Third Energy Package, which foresees unbundling or separating gas transmission, distribution and supply functions.

“It seems to me the Russian company is changing its tactics in Europe and will likely be less aggressive in Europe. It obviously becoming more flexible and maneuvering, but will do whatever it takes to remain the key gas supplier for Europe,” the expert is convinced.  He added: “I I reckon it will use other means to retain the dominance, but now not all depends only on it as the new energy geopolitics has to be considered.”

He insists the situation is “very favorable” for the judicial endeavors over the Gazprom gas price by Lithuania and Poland, as  well as other Eastern European countries, so, in his words, it is “a matter of time” when the next plaintiff seeking to sue Gazprom appears.

Sekmokas, however, said it was not “a good idea” to get the two neighbor countries’ claims against the Russian company put in one.

“Too many peculiarities to have the cases reviewed in a bundle,” he said.