Russian gas at European energy market: Why adaptation is inevitable

Economic crisis of 2009–2010 plus steady decarbonisation of the European Union (EU) energy policy decrease EU energy demand while gas supplies to the EU continue to increase as well as its multiplicity. Thus competitive niche for gas in Europe tightens, especially for Russian gas supplies with rather non-flexible contractual structures and pricing mechanisms such as long-term gas export contracts (LTGEC) with oil indexation. On top of this, Third EU Energy Package changes the whole architecture of the wholesale EU internal gas market. So risks and uncertainties for oil-indexed LTGEC within this tightening market niche for gas increase. To effectively address them, LTGEC need to become more flexible and adaptable. Gazprom has recently started such adaptation of its LTGEC. Whether this will stay as a temporary step-back or will become company's new regular policy towards more flexible contractual structures and pricing mechanisms in Europe?

► EU gas market development since 2009 became more risky and uncertain.
► These uncertainties result of demand- and supply-side, institutional and political developments.
► This makes competitive niche for Russian gas in EU more narrow and risky.
► To protect its market niche in EU gas Gazprom's policy need to be more adaptable and flexible.
► Gazprom has already begun such adaptation, but whether it will be a long-standing one?