31-10-07 Continuing to link gas prices to that of oil could be harmful to the gas industry, an energy expert said. Michael Corke, Senior Vice-President of the Houston-headquartered energy consultancy Purvin and Gertz, said gas also faces competition -- particularly in Europe -- from coal to fire up power generation plants. Corke was addressing a session at the “6th Doha Conference on Natural Gas”.
"If looking to sell gas long-term to power units, the coal indexation gains. There is not much linkage between spot gas prices and coal prices." Spot sales are the only basis for sales to UK and the US.

Corke said: "Spot gas prices are likely to be seasonal and volatile. In Europe, gas prices follow oil prices closely." Relying on linkage to oil prices especially when prices are high could hurt the gas industry as a whole. This could occur when oil prices are skyrocketing, as they are now.
"Coal is the main competition and maybe even nuclear energy. The message is gas must be competitive with coal," said the expert. The competition aspect is significant as between two-thirds and three-fourths of the demand for natural gas will come from the power sector. "Europeans buy fuels based on convenience and not which is cheapest," said Corke.

He spoke of the "side effects" of gas and oil price linkage. The logic of indexing oil prices to that of gas will come into question. Coal would be the fuel of choice and nuclear energy would be revitalised as an energy source.
"It is essential gas prices bring producers adequate returns. But looking for a balance is what needs to be achieved. If looking to sell gas to the power sector for the long-term, the coal indexation gains," said Corke.

As for whether oil and gas prices should continue to be linked, Corke stated: "The issue is very complex. There is a strong argument that oil linkage is a convenience with no link to economics.”
“It is possible to destroy the future of the (gas) business by being closely tied to oil. Coal indexation needs to be recognised, so others can be adjusted," he stated.

Also among the panellists was Qatar Gas Operating Company Chief Operating Officer (Commercial and Shipping) Ahmed Al Khulaifi who spoke on the QatarGas 2 project.
"Deliveries (of LNG) will be increasing in the next few years -- to the UK, France and Italy. We have ordered 31 Q-flex and 14 Q-max LNG carriers, the biggest orders since the Second World War," he said.