European Gas Contracts Will Oil Indexation persist OIES 2011

Howard Rogers, OIES Natural Gas Programme

In the context of European gas markets and international LNG markets, a number of issues are highlighted, covering: Europe’s hybrid gas market; the impact of gas gluts; continental gas market evolution; and midstream exposure. An overview of the original rationale for indexing gas prices to oil prices is provided, in respect to long term contracts and the way that major players (sellers and buyers) have worked with them. It is suggested that indexing will start to shift towards a more hub-based approach to pricing, but it will take several years before new pricing and contractual frameworks become established, during which there are likely to be some major problems for existing long term contracts.

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