Gazprom may use price formula for long-term pipe supply contracts

The Russian state-run gas monopoly Gazprom has asked its operating units to work out proposals on a possible use of a price formula for long-term contracts on supplies of pipe products by November 1, 2011, in order to cut spending on pipes.
 
In addition, Gazprom also said that it will update this year's schedules for pipe supplies to its most important capital construction sites and will calculate its 2012 needs for pipes.
 
In 2010, Gazprom's pipe purchases exceeded the initial plan by almost 25 percent and totaled 1.65 million mt, including 1.5 million mt of large diameter pipes (initial estimate was 1.277 million mt).
 
In 2011, Gazprom plans to buy up to 1.5 million mt of pipes. Since the beginning of 2011, the monthly volumes of pipe products shipped to Gazprom have reached record levels of 200,000 mt.
 
Gazprom also said that its large construction volumes gave it the right to ask for a discount.
 
"It is obvious that to continue to work on short-term contract-base becomes unprofitable for everybody. It is time to develop the terms for long-term contracts using a pricing formula which will give a fair picture of core markets. This will finally allow the supplier and the customer to clearly plan their spending, expand their businesses and develop logistics," Gazprom's chairman Alexey Miller said.
 
Gazprom's main pipe suppliers are OMK, TMK, ChTPZ and Severstal.