Russian state-controlled gas producer OAO Gazprom (GAZP.RS) Friday denied it is holding talks on price reductions for European companies, following a report that German utility E.ON Ruhrgas AG is seeking lower prices.

The Vedomosti daily reported earlier Friday that E.ON Ruhrgas had asked Gazprom--a key gas exporter to Europe --for a price reduction in its long-term contracts.

"There are no such negotiations taking place at the moment, neither with E.ON nor with any other European customers," a Gazprom spokesman said.

The Russian gas producer's long-term gas supply contracts with European customers are linked to the price of oil, but that pricing formula has attracted increasing criticism since crude peaked at over $140 a barrel in 2008.

Additionally, due to inflow of liquefied natural gas and increased production of shale gas in the U.S. , Gazprom's prices under the long-term contracts far exceed spot market prices, prompting importers to ask for contractual changes.

"We are continuously talking to all our suppliers on adaptation of supply conditions to the current market situation," said E.ON Ruhrgas, a unit of E.ON AG (EOAN.XE), without elaborating.

Gazprom agreed in February to partially drop the oil-price link of gas-delivery contracts to some European customers and temporarily incorporate a spot price component in the contracts.

The move signaled a major shift for the Russian gas producer, as it tries to defend its share of the European market.

Some say Gazprom will eventually have to make further price reductions and possibly drop the link to the oil price entirely.

"We believe that Gazprom will ultimately have to give price breaks to all its customers that have or will have an alternative supplier, such as Germany, Italy, France, Turkey and the Netherlands," said Troika Dialog's Oleg Maximov.

Gazprom's exports to Europe fell 12% last year amid an economic slowdown and transit issues with Ukraine
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