Price determination remains a question for oil and gas producers in the liberalizing European market for natural gas.
"Will prices be set by market realities and not by the index formula?" asked Brian Hamilton, ExxonMobil Corp. manager of gas marketing, Europe, at the International Gas Summit organized by Institut Français du Pétrole, SPTEC, and Petrostrategies.
Hamilton called for regulatory stability and consistency in Europe's gas market. "We need competitive markets to support a project," he said. "Is pricing being driven by oil, by gas, by interregional competition?"
He also called for market liquidity. "There are two markets: liquid in the UK and oil-indexed on the continent. To what extent can one pass onto the client increasing gas or oil prices?"
In much of Europe, gas prices in long-term take-or-pay contracts are hitched to prices of competing fuels. A major concern is whether the combination of high oil and gas prices will restrain use of gas in the generation of electric power, changing the relationship between the prices of gas and electricity.
"Liberalization changes the rules of the game," noted IFP Pres. Olivier Appert. "Gas price is linked to oil but also to electricity."
European markets
In Europe, the gas market is far from being as fluid as the oil market, noted an executive vice-president for gas with Electricité de France. This is because deregulation differed from one country to another, "blocking fluidity."
He said, "If there were a single [European Union] energy market, there would be a better convergence of electricity and gas prices."
Sonatrach Vice-Pres. Ali Hached asserted the need for balance between spot prices and long-term contract prices.
"With globalization growing in the gas market, where should price flows be directed, considering that in the UK and the US gas prices are soaring?" he asked.
Jochen Weise, a member of E.On Ruhrgas AG's executive board, said the future of the gas industry and the attractiveness of the European gas market in a global context would be determined by "today's political and economic strategies pursued by the market-shapers."
He noted the difficulty the gas industry faces making large investments in an uncertain market.
Rolf Schei, Statoil ASA senior vice-president, natural gas, described the European gas market as in transition.
"From time to time the price of gas is disconnected from electricity and will reconnect at some time or other," he said. At present, he added, LNG receiving capacity is not great enough to influence spot prices.
Nordine Aït-Laoussine, president of Narcosa, Geneva, said that, "for the first time," doubts have arisen that gas demand strength can be sustained "due to the new oil environment."
