Bloomberg News

GDF Suez Gas Contracts Revised to Boost Link to Spot Prices

January 23, 2012

(Updates with closing share prices in fourth paragraph.)

Jan. 23 (Bloomberg) -- GDF Suez SA, Europe’s largest utility by market value, said “nearly all” its long-term natural-gas supply contracts had been amended to strengthen the link with day-to-day prices and reduce import costs.

Taken together GDF Suez’s long-term contracts are now more than 25 percent linked to spot natural gas prices, up from 10 percent in 2010, spokeswoman Sabine Wacquez said by phone today. The contracts will see a “significant drop” in import costs and could be further amended for 2013, Wacquez said.

GDF Suez was among five European companies to agree to revised tariffs with Gazprom, Russia’s gas-export monopoly, which has declined to give details of the accords. GDF’s shares fell today after Barclays Plc said in a note that the renegotiated order could hurt next year’s profit and make a forecast of 20 billion euros ($26 billion) in earnings before interest, taxation, depreciation and amortization unachievable.

GDF Suez fell 3.6 percent to 20.36 euros, the biggest decline since Nov. 21. It was the biggest loser on France’s SBF120 Index.

The utility’s Ebitda loss next year due to supply costs could be 550 million euros, mostly on contracts to supply industrial users both in France and abroad, according to Barclays.

Chief Executive Officer Gerard Mestrallet declined last week to provide details about the contract revisions with the Russians, saying only they were “win-win” for the French utility and Gazprom.

Lower Costs

The utility is under pressure from the French government to lower costs. French gas prices, which are set by the government, won’t rise in the first six months of 2012, Mestrallet said last week.

GDF was able to raise rates by 4.4 percent on Jan. 1 after the government was ordered by the country’s highest court to suspend a yearlong freeze because rates didn’t reflect the cost of supply. A new formula for calculating regulated rates will take into account spot-market prices for nearly 30 percent of supply, Industry Minister Eric Besson said Dec. 13.

President Nicolas Sarkozy and the opposition Socialists have both said they want to limit increases in the cost of energy for consumers in the lead up to presidential elections in April and May.

GDF Suez’s biggest suppliers are Norway, Russia, Algeria and the Netherlands, from which it gets about 59 percent of long-term contract gas supplies.

--Editors: Alex Devine, Tony Barrett

To contact the reporter on this story: Tara Patel in Paris at tpatel2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net


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