E.ON Says Gas Sales Improving

The natural gas unit of German utility E.ON AG said that total gas sales volumes in 2010 have increased considerably over the 2009 levels.

Speaking at a press conference Wednesday at the E-World energy exhibition in Essen, Stefan Vogg, head of retail at E.ON Ruhgas, said that the increase was due mainly to improved demand from customers amid the recovery of the broader economy.

For the first nine months of 2010, the company had reported a 13% increase in gas sales compared with the same period a year earlier.

In 2009 Ruhrgas posted an on-the-year decline of around 10% in terms of gas sales volume to 609 billion kilowatt-hours. The drop was mainly due to plummeting demand from large industrial customers that scaled back production during the recession.

Vogg also said that energy markets have been undergoing fundamental change over the past two years, with an increasing number of customers looking to buy their gas requirements via contracts that are spot price linked, moving away from the traditional oil-indexation.

"We expect that one third to 50% of new contracts with our customers will have no oil indexation," Vogg said, adding that this will apply to all new contracts in the long term.

For the profit margins of Ruhrgas this poses a huge challenge.

The long-term gas supply contracts between producers such as Russia's Gazprom OAO and their European customers like Ruhrgas are linked to the price of oil, but that pricing formula has attracted increasing criticism since crude peaked at over $140 a barrel in 2008.

Customers' flight to spot linked contracts gained momentum due to a glut of gas on European markets, which is the result of the recession-related drop in demand in 2009 and increasing amounts of new unconventional sources of gas--such as shale gas--entering markets around the world.

Gas importers like Ruhrgas have sought to renegotiated supply deals with producers, but E.ON's Vogg Wednesday declined to comment on the talks.

Source: Reuters