Greek DEPA filed a claim in arbitration under the contract with Gazprom to reduce the price
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The decline in spot gas prices in Europe has begun to lead to claims by European buyers under existing contracts with Gazprom (MOEX: GAZP). The Greek DEPA, which failed to get Gazprom to reduce the contract price and take-or-pay concessions, decided to go to arbitration. In parallel, the companies are negotiating, but in the meantime, DEPA has decided to take advantage of the objective difficulties that Gazprom is currently facing in protecting its interests in European courts.
Greece’s DEPA Commercial has initiated arbitration proceedings with Gazprom over a gas supply contract, seeking a price reduction under a long-term contract concluded in 2022, company CEO Konstantinos Xifaras said on March 28.
“We should have competitive prices, but at the moment this is not the case… Commercial negotiations are ongoing, they have not stopped, but the company has taken the next step – it has gone to arbitration,” he said.
Gazprom declined to comment.
Greece is one of the few remaining major buyers of Gazprom gas in the EU, along with Hungary, Slovakia, Austria and Italy.
DEPA signed a new contract with Gazprom in January 2022, shortly before the outbreak of hostilities in Ukraine. At the time, the Greek company reported that the new agreement provided for “very competitive prices” compared to spot quotes. The contract for 2 billion cubic meters of gas per year expires in 2026. The agreement stipulates that 80% of the price for DEPA will be indexed based on quotations from the Dutch TTF hub, the remaining 20% - based on oil.
DEPA, according to the Greek publication Energypress, is seeking an improvement in supply prices for 2024, as well as a retroactive price reduction from January 1, 2023. DEPA supports its claims with the argument that in 2023 Gazprom allegedly supplied gas to another buyer in Greece at a lower price.
The share of Russian gas, both in the form of LNG and pipeline, in Greece remains at one of the highest levels in the EU – about 40%. Greece is one of the main buyers of LNG from Gazprom’s Port LNG plant. According to Kpler, in 2023 the Russian Federation supplied 0.66 million tons of LNG to the country.
The second problem in the contract is that DEPA did not fulfill the take-or-pay condition, that is, did not select the required annual volumes in 2022, writes Reuters.
Buyers, according to contracts, must pay for supplies regardless of whether they take the gas or not. In the case of DEPA, the price under the contract with Gazprom in 2022 was apparently too high to sell this gas on the Greek market. In 2022, gas consumption in the EU fell sharply due to extremely high prices.
According to Greek Energy Minister Thodoris Skilakakis, DEPA’s take-or-pay obligations in 2022 amounted to €150 million, and will reach €300 million in 2023. The usual practice is to carry forward undrawn take-or-pay volumes to subsequent years, which allows you to avoid fines. However, DEPA apparently refuses to acknowledge the very fact of its take-or-pay debt for 2022.
The reason why DEPA may now consider its negotiating position to be stronger is because of lower gas prices in Europe. If in 2022 prices on average exceeded $800 per 1 thousand cubic meters, now they have dropped to $300 per 1 thousand cubic meters. At the same time, DEPA has the opportunity to buy spot LNG from the global market, prices on which are likely to decline throughout the summer.
Gazprom, on the other hand, will feel uncomfortable in European arbitration in the current geopolitical situation. Although Gazprom is not directly sanctioned by the EU, even finding foreign lawyers can be a challenge, judging by the experience of other Russian companies in similar cases. Finally, the prospect of losing its largest Greek customer is also a concern for Gazprom, given the decline in export revenue this year due to falling gas prices.
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