Oil, Gas & Energy Law Intelligence

- at the first – transition - stage he proposes step-by-step switching from PPindexationto hub-indexation (providing as example a six-month transitionperiod), taking today’s correlation between contractual and spot prices as astarting point and bringing it to 1:1 in the end of sixth month. That will enable,from his view, very easily to move then – when same price levels achieved –from one pricing mechanism (PP-indexation) to another (hub-indexation),- at the second stage – to continue with hub-indexation, “adjustment completed,market price adopted thereafter”, 51 everywhere – both in spot and termcontractsmarket segments.In my opinion, both positions present rather marginal views. This author tries to finda mutually acceptable compromise between Komlev's Scylla and Stern's Charybdis. Ithink it is impossible to maintain the all-round PP-indexation within all LTGECs withinterm segment of gas market in Europe (Komlev’s view), nor possible to transfer all gaspricing in Europe to the spot quotations, both in spot transactions per se, as well as toswitch to them in LTGECs (Stern’s view).In the latter case the idea of switching from oil-indexation to spot-indexation in theexisting Russian supply contracts to the EU, e.g. in the contracts with major wholesaleEU intermediaries (with the delivery points at the former “old” EU border), who will thenjust re-sell Russian gas at the EU hubs and/or to the final customers thus minimisingtheir own pricing risks to zero by using the same pricing mechanism (spot-indexation)in their buying (LTGEC purchases with hub indexation) and selling (hub-trading withhub indexation) schemes is a “no go” scenario” for Gazprom/Russia since it will put allthe incremental risks on the producer. 5251 Jonathan Stern and Howard Rogers. The Transition to Hub‐Based Gas Pricing in Continental Europe. The OxfordInstitute for Energy Studies, March 2011, NG 49, P.31‐32, http://www.oxfordenergy.org/wpcms/wpcontent/uploads/2011/03/NG49.pdf52 For more details see, for instance: A.Barnes, A.Konoplyanik, D.Leonov. “Long term contracts and oil indexation”.‐ EU‐Russia Gas Advisory Council’s Pricing Workshop, Albert Borschette Conference Centre – Room 4C, RueFroissart, 36 – 1040 Brussels, May 15, 2013; A.Konoplyanik. “Russian gas to Europe: from simple to multiplecontractual structure”. – Выступление на VIII Международной конференции «Энергетический диалог: Россия‐ЕС. Газовый аспект», Круглый стол 2 «Давайте поговорим о бизнесе: Как российские и европейскиекомпании хотели бы работать друг с другом?», 30 мая 2013 г., Брюссель, Бельгия.44