Greece’s state-controlled gas supplier, DEPA Commercial, is taking steps to challenge the pricing terms of its natural gas contract with Russian energy giant Gazprom. The move comes amid soaring energy prices across Europe, fueled by Russia’s invasion of Ukraine and subsequent disruptions to gas supplies.
DEPA Disputes Gazprom Gas Contract Pricing
DEPA CEO Constantinos Xifaras announced the company’s decision to initiate arbitration proceedings against Gazprom during the Power and Gas Forum held in Athens on March 28, 2024. This action seeks a retroactive price reduction on the gas supply contract signed in January 2022. Additionally, DEPA is aiming to secure relief from future payments potentially amounting to hundreds of millions of dollars.
Xifaras emphasized that DEPA has been engaged in price readjustment negotiations with Gazprom for over a year. However, with these talks failing to yield a satisfactory outcome, DEPA has opted for arbitration as the next step. Gazprom has not yet responded to requests for comment on the matter.
The Gas Supply Deal and Market Volatility
The 2022 contract between DEPA and Gazprom stipulated the supply of 2 billion cubic meters (bcm) of gas annually to Greece until 2026. The pricing structure linked gas prices to the Dutch Title Transfer Facility (TTF) benchmark by 80%, with the remaining 20% indexed to oil prices.
The significant rise in European gas prices following Russia’s invasion of Ukraine heavily impacted the deal’s viability. The TTF benchmark price reached an all-time high of €306 per megawatt-hour in August 2022. This price surge made it challenging for DEPA to sell the imported gas competitively, leading to difficulties fulfilling the minimum annual purchase requirements outlined in the “take-or-pay” contract clause.
Under such clauses, buyers are obligated to pay for contracted gas volumes regardless of their ability to take physical delivery. Any undelivered gas gets carried over to the contract’s end as a credit.
DEPA Questions Gazprom’s Sales Practices
According to sources familiar with the situation, part of DEPA’s claims in the arbitration involve Gazprom’s alleged sales practices to competitors within Greece. These sources suggest that the contract may have stipulated Gazprom from offering lower prices to DEPA’s competitors. If true, this could explain DEPA’s struggle to offload the contracted gas volumes.
Further complicating the situation, Gazprom reportedly began exporting significant quantities of liquefied natural gas (LNG) to Greece in September 2022. The buyer for this LNG was Mytilineos, Greece’s largest private energy company, based on satellite data analysis by Kpler, a firm specializing in energy data analytics. Mytilineos also holds a separate gas supply contract with Gazprom extending until 2030. Mytilineos declined to comment on the specific terms and pricing of their gas purchases from Gazprom, citing confidentiality concerns.
The Road Ahead: Arbitration and Potential Resolution
The initiation of arbitration proceedings signifies a potential turning point in the gas supply agreement between DEPA and Gazprom. While the arbitration process can be lengthy and complex, it offers a path towards a negotiated settlement that addresses DEPA’s concerns regarding pricing and potential contract breaches.
A successful outcome for DEPA could involve securing a retroactive price reduction and potentially revised terms for future gas deliveries. This would provide much-needed financial relief for the Greek energy company amidst the ongoing market volatility.
Furthermore, the resolution of this dispute will be closely watched by energy market analysts and European gas consumers. It could set a precedent for how other European gas buyers address similar challenges arising from the current geopolitical climate and its impact on energy prices.
Source: Reuters
