Azernews.Az

By Bloomberg

European natural gas buyers are turning to long-term contracts to meet demand as domestic output declines, according to Statoil ASA, the continent’s second-biggest supplier.

U.K. utilities SSE Plc and Centrica Plc expanded long-term contracts with Stavanger, Norway-based Statoil in the past month, signaling that a trend toward spot trading might be reversing, Tor Martin Anfinnsen, senior vice-president of marketing and trading, said Wednesday at the World Gas Conference in Paris. Regional output is in decline as North Sea fields deplete and the Netherlands curbs extraction at Europe’s biggest field.

An increasing number of utilities are expanding long-term deals instead of investing in their own exploration and production businesses, Elchin Mammadov, an analyst at Bloomberg Intelligence, said in a report June 2. SSE signed a six year- contract for 2 billion cubic meters (71 billion cubic feet) a year of Norwegian gas, while Centrica secured a 10-year contract for 2.3 billion cubic meters a year, Anfinnsen said.

“These agreements we now have and the interest we’ve had, including from several people here in Paris, show that people are looking for longer-term gas again,” he said in an interview at the conference in the French capital. “It sort of went out of fashion for a while as the traded markets started to develop and become sufficiently liquid, but now you see quite a few companies returning.”

Liquid Hubs

European nations had 126 long-term supply contracts to receive a maximum 449 billion cubic meters of fuel through pipelines as of last year, according to data from the International Center for Natural Gas Information.

Utilities are trying to avoid capital-intensive exploration and production and volatile commodity prices, Mammadov said. While RWE AG sold its exploration and production business, Centrica and SSE increased the amount of gas they plan to buy from Statoil and Russia’s OAO Gazprom under long-term deals, he said.

“In some countries it’s about security of supply, in other cases it’s the fact that indigenous production in Europe is tailing off and it’s stepping down with what’s happening in Groningen,” Anfinnsen said, referring to Europe’s biggest field in the Netherlands.

The U.K., Europe’s biggest gas market, doubled its carbon tax this year, boosting the competitiveness of gas-fired power plants compared with stations burning coal.

“That has increased the interest in gas from us. In the U.K., what we have seen is that the development of CO2 policy is increasingly pushing old coal plants out,” said Anfinnsen, who this week took over his role from Rune Bjoernson.

Germany’s plan to cut emissions from electricity generation by an additional 22 million metric tons by 2020 from 1990 levels may also make combined heat and power plants burning gas more profitable, he said.