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E.ON Ruhrgas Announce Price Reductions

The Leading German gas importer said it would reduce the prices it charges to local utilities and industrial consumers as of January 2009

Leading German gas importer E.ON Ruhrgas said on Tuesday it would reduce the prices it charges to local utilities and industrial consumers as of January 2009, with another cut eyed for April.

Separately, seven E.ON group regional gas suppliers said they would cut their retail prices by 4 percent on average in February, but maintain planned retail price hikes in December.

"We will cut our prices in January," said a spokesman for E.ON Ruhrgas, the Essen-based wholesale company, citing falling oil prices and adding that another cut was expected in April. He declined to give details.

The announcement, which has come after crude oil prices shed two-thirds of their peak levels in July of near $147 a barrel, was widely expected, as European gas prices are index-linked to oil with a time lag of about six months.

Gas companies have to pass on oil price changes to their customers under contractual clauses each calendar-year quarter, but the changes can differ between companies.

Crude oil CLc1 has dropped to below $53 as the global finance crisis eroded demand and triggered sales by energy investors seeking to cover falling equity positions.

The wholesale market changes affect end-consumers last -- with the delay in the trickle-down effect depending on the pricing strategy of local suppliers, the intensity of competition, and the level of taxes and local distribution costs.

E.ON Ruhrgas, which gets 26 percent of its gas by pipeline from Russia, and also sells to long-distance shippers and gas-to-power plants in its home market and abroad, is a significant contributor to the E.ON group's profitability.

In the first nine months of 2008, it sold 502.6 terawatt hours (TWh) of gas, 4 percent more than in the comparable 2007 period.

The seven regional E.ON group distributors such as Avacan and E.ON Bavaria, which sell gas to households, and small and medium-size businesses, said the oil-driven gas-price cuts would reach their customers later.

Because the oil price rallies in the summer had not yet been fully accounted for, their prices would increase by between 10 and 12 percent from Dec. 1, a spokesman for the units said.

Should oil continue to fall at the current pace, then the planned retail price reduction in February might precede yet another one in the spring, which they said could be bigger than the measure in February.

Author: Jo Amey