Shares in EON have risen by 10 per cent over the last two weeks and have led a limited rally among Germany’s hard pressed utilities. The deal reached after years of negotiation with Gazprom sets a precedent and puts a big question mark over the pricing structures and energy mix across the whole European electricity sector.
The scale of the price reduction has not been announced but was sufficient for EON to add over €1.5bn to their net profit forecast for this year. The cut in prices is a reflection of reality. European gas demand has been falling and supplies are plentiful. In addition to continuing production from the North Sea , supplies from Russia, central Asia, north Africa, west Africa, Qatar and Trinidad are all competing to supply European consumers.
That is before counting any exports of gas from the US ( which are due to start in 2016 ) or any production from Europe’s extensive shale gas resources.