EU GAS MARKETS
the way gas is predominantly priced in Europe. As in the UK, sustained market liberalisation is necessary, as is a willingness of incumbent downstream suppliers (utilities) to re-negotiate contracts. Fees will need to be paid to reopen contracts that are now out of the money for buyers but deeply in the money for the producers; compensating the producers for changing in-the-money contracts could be costly. While the downstream supplier response has been mixed in terms of willingness to change, we look at the upstream. Natural gas coming into Europe
from the east is dominated by Gazprom, and we have already mentioned the opening up of indexed formula to encompass market gas prices for flexibility volumes in the contract. The message to the market on the future of oil- indexation from this move, however, was not equivocal. On the one hand, it was clear evidence of a weakening
of the producer’s ability to enforce complete adherence to oil- indexation in the face of plentiful marginal supply; on the other, for the baseload level of supply, it was clear that any movement away from oil-indexation was not going to willingly come from this producer. Gazprom’s desire to defend oil-indexation was highlighted by a recent announcement that Russia and Algeria had signed a memorandum of understanding that both countries would try to enforce oil-indexation in future gas supply contracts. This did little to add to the debate apart from highlight that such contracts are in the money for producers – and are likely to stay that way for a while. Norwegian producers have had a more sanguine approach
to the market. Generally, they are broadly happy to sell into the UK regulated market, and supply to that market has increased 104% between 2005 and 2009. Contracts available from the Norwegians include spot sales, forward fixed contracts and longer-term supply contracts indexed to NBP. Having said that, the Norwegians are happy to provide continental buyers with oil-indexed contracts on a variety of product baskets and will recognise the current value such contracts give them. One could view this flexibility as the act of a new entrant trying to grab market share or possibly as a willingness to change the basis of gas prices in Europe. In summary, for the producers, particularly since oil-indexed
contracts are currently largely in the money against market gas (notwithstanding the latter’s recent increases in price),
8.-10.2.20 11 Essen /Germany
BUSINESS NET W ORK
www.e-world-2011.com
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