London, 12 September (Argus) — The European Commission confirmed today that its probe into alleged anti-competitive practices in Russian state-controlled Gazprom's long-term agreements to supply gas to central and eastern Europe is not an attack on the principle of oil indexation itself, but rather on the firm's insistence on indexation in countries where it is the dominant supplier.

“We are not saying that oil indexation is illegal per se”, the spokesman for commission vice-president and competition commissioner Joaquin Almunia said. “But if a dominant company decided to maintain oil price indexation without reflecting the evolution of market fundamentals, such behaviour could possibly be abusive, for example if this leads to higher prices while demand for gas actually decreases”, he said.

A day earlier, Almunia told the European Parliament that while market conditions in the past may have justified the use of oil indexation, the competition directorate's analysis was that the development of the spot gas market and the fundamental changes in the global market wrought by the surge in shale gas production meant that those justifications no longer held. Oil indexation “does not respond to the fundamentals of the market,” he said, “to the interplay between supply and demand that should exist in a market and that we want to exist in our internal market.”

But his spokesman's clarifications narrow Almunia's comments to the specific circumstances of the eight countries in which Gazprom's conduct is under scrutiny — countries in which the Russian firm “is the dominant supplier of upstream gas”, the spokesman noted.

That said, the directorate is taking into account the concessions that have been granted to western European importers in recent years. “Our analysis is that companies have tended to adjust their pricing practices to take into account the fact that, although historically linked, oil markets and gas markets have increasingly moved apart”, the spokesman said.

Gazprom has only ever been willing to link a small proportion of its exports to the wholesale gas markets, and in its most recent round of price negotiations, offered its western European customers a cut in the oil-linked base price, rather than any increase in gas-on-gas pricing. But in recent years, it has appeared to accept a faster price review cycle than the typical three-year interval with at least some of its customers.

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