Bloomberg News

Natural-Gas Prices Will Move Away From Oil Link, BP Says

December 13, 2011

(Updates with comment in second paragraph.)

Dec. 12 (Bloomberg) -- Natural-gas prices will move away from being linked to crude oil over the next three decades as the world becomes increasingly dependent on liquefied natural gas, BP Plc’s chief economist and vice president said.

“It is a process of growing integration, which will change the pricing system in many markets,” Christof Ruehl said today at a conference in Oman’s capital, Muscat. “It’s not a process of two or three years, it’s a process of maybe 20, 30 years.”

Gas, which is linked to oil in most of Europe and Asia, is cheaper in North America, where it is priced independent of crude prices. European gas importers, including EON AG and RWE AG, have sought to weaken the link between gas and oil prices, particularly in contracts with Russia’s OAO Gazprom, the source of a quarter of Europe’s supplies. The companies have said they are losing money as they are forced to sell gas to customers for less than it costs under the long-term contracts.

LNG, gas chilled for transport by ship, accounts for 30 percent of gas volumes sold across international borders and “has the potential to connect segmented markets,” Ruehl said. “Cheaper energy supplies are having a considerable impact, forcing Gazprom to price their gas at market prices,” he said.

Pipeline gas has traditionally been priced based on oil because its sale involved a single buyer and seller and lacked a market, he said.

“It’s that link which is breaking apart,” Ruehl said.

--Editors: Rob Verdonck, Raj Rajendran

To contact the reporter on this story: Robert Tuttle in Doha at rtuttle@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net


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