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Centrica extends gas deals

Article By: ,  Financial Analyst
May 13, 2015 5:26 PM

Centrica, the owner of British Gas has signed a deal to buy increased volumes from Russian state-controlled energy group Gazprom.

The company has announced that it has raised the average volume of gas supplied by the Russian company by 70 per cent, up to 4.1 billion cubic metres (bcm) a year. The total volume to be delivered under the long-term deal is 29.1 bcm.

British Gas is the UK's biggest domestic supplier and Reuters notes that this deal signals that there are growing links between the companies, despite higher risks associated with increasing sanctions against Russia over the conflict in Ukraine.

Gazprom and Centrica have had a formal trading relationship for at least five years – as the two companies started working together in 2012. That contract was originally scheduled to run for three years, but has been extended until at least 2021 and the greater volumes will be supplied beginning this year.

Gazprom has a number of export contracts with buyers across Europe. Unlike the rest of those contracts, the gas supply is sourced from a global portfolio by London-based GM&T – it's not managed by Moscow.

In addition Gazprom's role in the European gas market has come under scrutiny, as The European Commission has accused the company of illegally overcharging customers and pushing out rivals in central and eastern Europe.

Norwegian deal

Centrica has also increased the volume of gas that it will buy from Norwegian company Statoil.

In 2011, the group signed a ten-year agreement for the supply of 5 bcm of gas a year, which was to be delivered from October 2015. The new deal increases that number by an additional 2.3 bcm a year. Now, the total volume to be delivered will be 73 bcm over ten years.

According to Centrica, Britain needs about 70 bcm of natural gas each year to heat homes and businesses, as well as to generate electricity. About half of the supply now needs to be imported. It's expected that the deals with Gazprom and Statoil will meet the needs of around nine million households.

Centrica's stocks opened on the London Stock Exchange today at 279.50, up from 278.30 at the previous close.

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