EnBW – 10-year gas procurement contract

EnBW said it has agreed a 10-year gas procurement contract with a foreign supplier, giving it more flexibility when it comes to deciding whether it makes more sense to store or sell, depending on how the gas price is on the market.

The deal is for an annual volume of 21 billion kilowatt hours (kWh), equivalent to 1.9 billion cubic meters (bcm) per year, which is more than a third of its total gas sales and enough to supply a large industrial company or a large number of smaller companies.

The Karlsruhe-based company said Thursday the annual cost would be about 600 million euros. That’s about a third of its annual gas sales of 1.82 billion euros, according to the company’s annual report.

With this long-term deal, EnBW is implementing its medium- and long-term gas strategy and further expanding its position in the gas market it said. EnBW said the contract would start from October 2012. A spokesman said the price would be partly linked to oil prices and partly at prices linked to local gas exchanges. In this way, it would reflect the increasing importance of wholesale markets for pricing and be better prepared for short-term market developments and price fluctuations.

European gas importers and wholesalers have been cornered by sourcing gas from long-term contracts directly with source countries such as Norway and Russia, which are directly linked to the price of oil but have passed the gas on cheaply to end customers who have access to other markets.

Renegotiations with suppliers have shown that there are now breakthroughs that bode well for a number of importers in countries such as Italy and Poland. Gazprom, in particular, offered its customers E.ON and EnBW a price cut after lengthy discussions earlier this month. EnBW gains flexibility and a degree of independence from this deal, which has hit earnings from E.ON, RWE and others. The EnBW spokesman said his company respects the contractor’s wish to remain unnamed. He would not comment on the details of the contract.