Officials from RWE AG (RWE), Germany’s second-biggest utility, and BG Group Plc clashed on a conference panel in London over the best way to price natural gas.
The German power generator, which is in a legal dispute with OAO Gazprom over the Russian company’s policy of linking its charges to oil costs, said the global nature of gas trading meant the fuel should be treated as an independent commodity. BG Group said gas buyers and sellers want to maintain the oil link.
“As soon as you assume gas will evolve as just another global market on its own, there is no real reason to have gas indexed to oil,” Peter Kreuzberg, RWE Supply and Trading GmbH’s chief commercial officer, said on a panel at the Edison Electric Institute International Utility conference. Traders and utilities seek “clarity about the terms of conditions.”
About two-thirds of gas in Europe is sold at prices linked to the cost of crude-oil products. Trading hubs, where prices are lower than the oil-linked gas sold by Russia and Norway, are growing in Europe. Gas is priced according to supply and demand in the U.S., where rates plunged as local output rose. Asian nations such as Japan pay the highest gas prices, pegged to oil.
“Oil indexation will sustain both in Europe, but in particular in Asia,” Andrew Walker, BG Group’s head of liquified natural gas strategy, said at the conference. “If both the buyers and the sellers are for it, that kind of tells you it probably will sustain.” There are “very few” pricing alternatives in Asia, Walker said. Costs in the gas business tend also to track the oil industry, he said.
The company expects to make as much as $2.8 billion this year from producing and selling LNG, BG said Feb. 9, and it’s investing $15 billion in Australian output. Demand is outpacing supply and the market will remain tight through 2014, when the next wave of LNG plants in Australia will start up, it said.
“We see Australia helping to balance the market but It won’t fully balance the market,” Walker said. “We see continued tightness even with Australian supply.”
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