UK: Oil-linked gas deals face harsh winter

Europe’s traditional oil-linked gas contracts are under unprecedented pressure for reform as captive buyers face rising prices in a market that looks awash with cheap spot gas for years.

A recession-driven gas glut and an unprecedented influx of liquefied natural gas (LNG) has seen European spot market prices sag well below oil-linked levels in 2009, with little prospect of a sustained rebound in spot gas prices for at least a few years.
But oil-linked gas prices are set to rise even higher over the next year because of a sustained rally in crude prices, so Europe’s biggest gas consumers are likely to fight harder than ever to escape them.

“This is the beginning of the end of the old commercial gas contracts of Europe,” Jonathan Stern, director of gas research at the Oxford Institute for Energy Studies, told the Oil & Money conference on Wednesday.

“The current system is not sustainable. A shift away from the contractual linkage I think is inevitable over the next year or two … It does not mean the end of long term contracts it just means the end of long term contracts as we currently know them.”

Reuters