Crunch time for natural gas rate talks

Crunch time for natural gas rate talks

After certain attempts via political consultations to reach a new agreement for the procurement of Russian natural gas, which came to nothing, negotiations are returning to their natural environment, which is the Lakhta Center in Saint Petersburg, Gazprom’s headquarters in Russia, between officials of the Public Gas Corporation (DEPA) and the Russian energy giant.

In these kinds of talks it is usually the strongest side that calls the shots, as it also has time on its side. In this case DEPA is obviously the minor partner, and is burning to reach an agreement.

Given the uncertainty regarding gas procurement rates and how they might change, with Gazprom accounting for more than half of its quantities, it is no easy task for DEPA to reach any agreement with its own clients for next year, although there are fewer than 20 days left in 2021. In this time DEPA must reach an agreement with its main supplier and sign contracts with its clients – electricity producers, enterprises and gas retailers.

The clock is ticking and DEPA officials are hoping to reach the best possible deal with Gazprom within the week. On the positive side, the two companies have enjoyed a long relationship dating since 1988.

All this time Gazprom has proven to be a consistent supplier, and DEPA has been a reliable client, which both companies acknowledge, as does the domestic energy market. After all, this is not the first time their contract has needed to be renegotiated, as regulations allow when conditions change.

Rates have now soared more than 500% since the start of the year, and on August 20 Gazprom asked DEPA for the contract’s rates to be 100% pegged to market rates as of January 1, 2022, which would mean additional costs of 650 million euros for DEPA. The Russian company now appears to be prepared to discuss an 80% connection to market rates.

DEPA’s Chief Executive Officer Kostas Xifaras will seek to secure a contract based on what Prime Minister Kyriakos Mitsotakis has asked at a political level, that being a rate that is partly dependent on market prices, but not too far away from the existing one.

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