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. Last Updated: 07/27/2016

Gazprom Defends Long-Term Deals

APFans of Schalke holding up a giant Gazprom shirt during a football match with FC Zenit in Gelsenkirchen on Saturday.
GELSENKIRCHEN, Germany -- A top Gazprom executive on Saturday warned Europe against energy-market reforms that would disrupt long-term supply agreements or infringe on companies' rights to control their own pipeline infrastructure.

Long-term contracts covering decades should not give way to short-term trading by "speculative firms of the Enron type," deputy CEO Alexander Medvedev said, referring to the high-flying U.S. energy trader that went bankrupt.

"You all know how that turned out," he said.

The European Union is working on a new energy policy aimed at improving the security of supply and increasing competition, including a proposal to split big energy companies from their distribution networks. Gazprom, the world's largest gas company, which supplies one-quarter of Europe's needs, produces gas from its Arctic and Siberian gas fields and also owns a distribution pipe network in Germany through its Wingas partnership with BASF's Wintershall division.

"We are prepared to conduct business to the letter of the law," Medvedev said. "But I think it would be a mistake not to take into account the opinion of gas producers."

He added that 60 percent of Wingas' contracts with Gazprom were of one-year duration. "That means Wingas has to show its competitiveness on the market every year," he said.

Much of Gazprom's business, however, is long-term contracts with buyers obligated years in advance to pay whether they use the gas or not, the so-called "take or pay" practice. Medvedev defended the practice as a guarantor of steady supplies.

He also said any liberalization should not deprive companies of control of their pipelines. One form of liberalization sometimes discussed would be to give competitors access to utility companies' pipelines.

"Access to infrastructure is a condition of reliable gas supply," said Medvedev, who spoke to reports in Gelsenkirchen before a soccer match between FC Schalke and Zenit St. Petersburg. Gazprom sponsors both teams.