Europe’s second largest gas supplier has broken the link to oil prices in a majority of its northern European contracts, moving much faster than expected on an issue seen as key to the continent’s industrial competitiveness.
The Norwegian state energy company, told the FT all of its German contracts and nearly all its UK, Dutch and Belgian contracts now reference prices at regional gas hubs, which the EU has been promoting as it seeks a more open gas market.
For decades European companies have tended to sign long-term supply contracts linked to the price of oil, whereas US companies have been able to buy gas for immediate delivery in a widely traded market, giving them more flexibility.
Last week Fatih Birol, chief economist at the International Energy Agency, urged European companies to end oil indexation to remain competitive.
Eldar Sætre, Statoil’s executive vice-president for marketing, said: “We have proactively sold gas in different ways in response to market liberalisation and what customers want.”
The new contracts reference a mixture of day ahead, month ahead and season ahead prices at hubs such as the UK’s National Balancing Point and the Netherlands’ Title Transfer Facility.
Progress has been slower in modifying contracts for supplies in to eastern and southern Europe, where hubs are less well developed, but Mr Sætre said he expected close to 50 per cent of Statoil’s supplies into Europe would be priced off gas market indices by the end of the year, compared with a third at the start of the year.
The news will be welcomed by policy makers in Brussels and large gas buyers who have been fighting for an end to oil indexation for several years. Gas buyers argue that oil-indexed prices charged by Statoil and its Russian counterpart Gazprom often differ from the regulated prices at which they sell gas to consumers.
Eni, the Italian energy company, has taken Statoil to arbitration this year. According to people familiar with the dispute, since the contract was last renegotiated several years ago, Eni has been buying gas at oil-linked prices of about $15 to $16 per million British thermal units, before selling much of it to third parties at European hub prices, which are about $10 per mBtu.
Gas price indexation should end such situations by ensuring the price paid for gas reflects supply and demand for the commodity in the European markets where it will be used.
But although the two are often conflated, gas hub pricing will not necessarily lead to lower gas bills for households and European companies.
Thierry Bros, senior European gas analyst at Société Générale, notes that as Gazprom and Statoil have ceded ground on oil indexation in recent years, prices at European gas hubs have rallied strongly towards oil-indexed prices, meaning the producers’ revenues have been little impacted.
While Gazprom and Statoil between them supply more than a third of European demand of almost 500bn cubic metres, the continent continues to import liquefied natural gas to satisfy demand. The prices for LNG are largely linked to the oil price and have climbed sharply because of strong Asian demand.
In the US by contrast, fast growing shale production means prices have diverged from international markets, and are less than half of European levels.
The US is set to become a major LNG exporter towards the end of the decade after Washington granted permits to several export projects. However, the price of LNG coming across the Atlantic from the US will not be that different from current European hub prices because of the cost of liquefying gas and shipping it abroad, say analysts.
Vezi aici o analiza a efectelor GNL-ului american asupra pietei globale a gazelor naturale si a petrolului …. “GNL-ul American, între schimbările produse la nivel global și viitorul său în SE Europei”
“European companies are still paying much more for gas than in the US, and that is likely to continue however contracts are arranged because of the need to attract supplies,” Mr Bros said.
The Commodities Note is a regular online commentary on the industry from the Financial Times