Natural Gas Exporters Seek to Keep Oil-Price Link as Glut Grows
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By Robert Tuttle
Dec. 9 (Bloomberg) -- Natural gas exporters, meeting today in Qatar, may discuss how to maintain the link to oil prices that’s supported revenue this year amid a glut in supply.
The connection between prices for the two fossil fuels is essential to attract investment in gas export projects, Algerian Oil Minister Chakib Khelil said yesterday after arriving in Doha for the Gas Exporting Countries Forum.
Natural gas prices in the U.K., Europe’s largest consumer, have dropped 49 percent this year as production and inventories grow, while Brent crude oil gained 65 percent on expectations for a rebound in demand. E.ON AG and other European utilities like GDF Suez SA are trying to buy more lower-cost gas in spot markets and renegotiate longer term contracts linked to oil that stipulate higher prices.
“What the buyers are saying is look, we’ve signed these contracts but we’ve got a problem,” Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, said in a telephone interview. “That problem is that there is an awful lot of gas at half the price to our long-term contracts.”
The global recession cut demand for natural gas at a time when the development of so-called shale gas in North America is increasing production, causing a global oversupply that’s sent spot prices for the fuel tumbling. Asian buyers also use multi- year contracts for liquefied gas purchases.
‘Acute Glut’
The International Energy Agency warned last month of an “acute glut” of natural gas worldwide in the next few years because of rising production in the U.S. and Canada. Supply is set to outpace annual demand growth of 2.5 percent between 2010 and 2015, the IEA said in its annual World Energy Outlook.
E.ON recorded “some success” in delaying natural-gas supplies from Russia and Norway under long-term contracts as it seeks to take advantage of cheaper spot-market prices, Chief Executive Officer Wulf Bernotat said on Nov 11.
“Not much can be done to support prices in the short- term,” Ibrahim Ibrahim, economic advisor to Qatar’s ruler, said in an interview in Doha yesterday. “We are not talking about using production itself to lift the price.
“We are hoping the linkage is still there” between oil and gas, he said.
The Forum, established in Tehran in 2001, has 11 members; Algeria, Bolivia, Egypt, Equatorial Guinea, Iran, Libya, Nigeria, Qatar, Russia, Trinidad & Tobago and Venezuela. Its Web site also lists Kazakhstan and Norway as having “observer” status, as does the Netherlands.
Secretary-General
The gas exporters group, dubbed “Gas OPEC” by some analysts for its potential similarity to the Organization of Petroleum Exporting Countries, will elect a secretary-general today. Russia and Iran have proposed candidates.
Qatari Energy Minister Abdullah bin Hamad al-Attiyah, who’s hosting today’s meeting, and Alexander Medvedev, deputy chief executive of Russia’s export monopoly OAO Gazprom, both said last month the oil-price link needed to stay. The group’s 11 members control more than 35 percent of world gas supply.
Russian Energy Minister Sergei Shmatko said he was content with the current level of oil prices, when he arrived yesterday in Doha. Asked about natural gas prices, he said that was “difficult to say.”
GECF members have held eight previous ministerial meetings to discuss markets and share technology, though unlike OPEC the gas exporters group has never set price targets or production quotas. The tenth meeting is scheduled for April in Algeria.
‘Preserve the Link’
Gas exporters “would like to preserve the price linkage between gas and oil which is currently under attack by market forces,” Morten Frisch, senior partner at Morten Frisch Consulting in East Horsley, southwest of London, said in a telephone interview. “This subject will be on the agenda, I can guarantee.”
IEA Executive Director Nobuo Tanaka, whose agency advises energy-consuming countries, said yesterday that he’s against the formation of a “gas OPEC” that sought to control global supply of the fuel.
Russia alone accounts for about 19 percent of world gas production and holds 23 percent of global reserves, according to statistics compiles by BP Plc.
“We are against cartelization,” Tanaka told reporters at the organization’s headquarters in Paris. “If a gas OPEC were created to control production or investment it could create problems for the future functioning of the gas market.”
To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net
Last Updated: December 8, 2009 19:01 EST
