Gazprom brush-off: Germany’s largest gas supplier signs ‘milestone’ contract with Canada

Germany’s largest gas supplier E.ON plans to taper its dependence on Gazprom, Russia’s state-owned gas major and Norway, instead developing ties with the Canadian company Pieridae Energy.

The contract was finalized on June 3rd, and Pieridae Energy will supply five million tonnes of liquefied natural gas (LNG) to Western Europe for an unspecified several billion euros, Deutsche Welle reported.

Pieridae says it will build Canada’s first LNG export terminal at Goldboro, Nova Scotia on Canada's east cost by 2020, now that they have secured reliable shipping clients in Europe.

The deal was cited as a ‘milestone in the diversification’ for E.ON, which will enable the German gas, energy, and electric conglomerate diversify its gas imports, and move away from Russian gas dependence. The diversification will help avoid future economic risks, and provide the company with a market edge.

E.ON has a long history with Gazprom with long-term contracts and fixed prices, and in the past year has tried to negotiate revised contracts with Gazprom.

The high price of Russian gas and Gazprom’s reported refusal to negotiate spot market pricing, led to deep losses at the Germany company, with core earnings dropping 5 percent on weak energy consumption and low prices.The Dusseldorf-based company warned it ‘faces major challenges’, reporting plans to slash up to 11,000 jobs.

E.ON says it has been forced to sell the gas it buys from Russia at a loss in order to remain competitive on the German market.

Existing contracts between Gazprom and E.ON run through until 2020, 2035, and 2036. Currently E.ON, imports around 20 billion cubic meters of gas annually.

The president of Lukoil, Russia’s second largest oil producer, Vagit Alekperov, doesn’t foresee a drastic change in the German-Russian energy dynamic in the coming years.

“Gazprom will retain its share on the European market thanks to the infrastructure it has set up over decades and the flexible pricing policy," said Alekperov.

E.ON, Germany’s biggest utility provider, also supplies homes with electricity. In 2013, it sold more power in advance to shield themselves from future energy dips.

In this year’s first quarter, the company sold 100 percent of its output for the current year, compared to only 90 percent a year earlier.

On May 29, E.ON completed its acquisition of an additional stake in the Brazilian power company MPX Energia S, buying a 24.5 percent stake for $673 million, which brought its total stake up to 36.2 percent