Norway's Statoil signed a 10-year gas supply deal with Germany's Wintershall, based on spot prices that challenged Russian gas export monopoly Gazprom, which insists on oil-linked prices despite European Union opposition.

Statoil agreed on Tuesday to supply Wintershall, the natural gas unit of chemicals firm BASF, with 45 billion cubic meters (bcm) of gas worth $17.4 billion at current prices, in a deal aimed at creating a flexible gas market in northwestern Europe.

"This is the first contract of such magnitude and length in continental Europe," Statoil Executive Vice President Eldar Saetre told Reuters.

Government-controlled Statoil, Europe's second biggest gas supplier after Gazprom, is now selling about half of its gas under spot terms, including more than 40% of its European gas, Saetre said.

By contrast Gazprom, which faces an anti-trust probe from the European Union, on Tuesday stood firmly by the established system of clinching long-term deals linked to the price of oil and insisting that customers pay penalties if they do not take the gas as agreed.

"We will defend our system of long-term contracts with all our energy," the Russian state-controlled company's export chief Alexander Medvedev told a gas conference also stressing its commitment to the European market.

"We have a portfolio of long-term take-or-pay contracts totalling 4 trillion cubic meters of gas," he said.

This approach has angered European power and gas suppliers who have to sell the gas on to customers at retail prices linked to the freely traded spot market, which can be lower than the price paid to Gazprom.

Russia provides around 35% of the EU's gas demand, according to data from the European Commission, and Europe accounts for 80% of Russian gas exports.

Investigation

The European Commission launched the investigation earlier this year, focusing on suspicions Gazprom was hindering the free flow of gas across the EU's 27 countries, preventing supply diversification and imposing unfair prices on its customers.

Meanwhile Gazprom also faced a potential domestic challenge to its export monopoly as Russia's energy ministry said it could make an exception for an independent liquefied natural gas project that could help break Russia's dependence on Europe's declining market for its pipeline gas.

Statoil said the Wintershall deal, which represents about 6% of German consumption, reflects a shift toward a more flexible market, similar to that in the United Kingdom, where all Norwegian gas is sold according to spot prices.

"We are moving to that direction, we are in the transition (to the spot market), but I can't say how quickly it will take to get there," Statoil's Saetre said.

"Already, if you want to sell gas in Europe on shorter term, 1-2 year, contracts, you basically have no other option but to use spot price," he added.

Analysts at French Bank Societe Generale said oil-indexation was already down to 55% of total volumes of gas sales in Europe, and that spot indexation would be the dominant form of pricing by 2014.

Germany's two biggest utilities E.ON and RWE renegotiated their long-term gas purchasing contracts with Statoil this year to adjust the terms to the market conditions, but it remains unclear how much of gas they buy is spot-indexed.

Last year, Statoil signed a 10-year extension to an existing natural gas sale contract with British utility Centrica linked to the UK spot price.