E.ON Proceeds to Arbitration with Gazprom

E.ON Ruhrgas AG has opened arbitration proceedings related to talks with Russia's Gazprom OAO over long-term gas supply deals.

"We can confirm that we have opened an arbitration process related to our supply relationship with Gazprom," E.ON Ruhrgas said in an emailed statement. E.ON Ruhrgas spokesman said the arbitration procedures relate to all gas supply deals with Gazprom, which amount to around 20 billon cubic meters per year or around 27% of E.ON's overall gas procurement in 2010.

The spokesman noted that both E.ON and Gazprom are now in the process to each select one arbitration judge. These two judges will then select a third judge, who will chair the proceedings. The court that will handle the proceedings has not yet been chosen, according to the E.ON spokesman.

Also, E.ON said the gas supply contracts with Gazprom specifically spell-out that arbitration can be initiated by either party, if both companies fail to reach an out of court settlement in renegotiating commercial terms of the gas supply deals.

Sergei Chelpanov, deputy director general of Gazprom Export, said in the arbitration mechanism "in no way hinders the negotiation process."

E.ON said that the company continues talks with Gazprom with the aim of reaching an amicable agreement.

Long-term gas supply contracts between producers such as Gazprom and its European customers 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.

Recently, Edison SpA, said it had successfully renegotiated the pricing of its long-term contracts from Promgas, a joint venture between Russia’s Gazprom and Italy’s ENI, for the supply of natural gas from Russia.

Speculation has occurred that a recently announced strategic partnership between Gazprom and German utility RWE AG could see the resolution of an on-going dispute between the German utility and its Russian supplier over the renegotiation of gas supply contracts.