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Statoil expects natural-gas contracts will remain linked to oil

Statoil ASA, Norway's largest oil company, expects prices for natural gas to remain linked to oil prices in European markets and may consider signing supply deals on that basis, its executive vice president for gas said.

Supplies of gas to resellers or consumers in mainland Europe have historically been priced on an index related to the cost of oil or oil products, rather than spot gas markets. In the UK, contracts are now being linked to the traded price of gas. „Long-term contracts with a price indexed to oil are good deals for European importers,” Rune Bjornson said today at a conference in Amsterdam.

They provide predictable prices with limited volatility, he said. „I don't see a reason for the breakup of long-term oil pricing at this point.” Statoil ASA, which is considering building a gas pipeline either to the UK or to mainland Europe, may use such pricing for new supplies. „Long-term contracts are still crucial to underpin investments. They provide a basis for secure supplies,” Bjornson said in an interview at the conference.

„There are buyers in the UK prepared to take an oil link and buyers prepared to take a gas link in continental Europe.” Supplies linked to the price of gas are also important to ensure a balance between supply and demand, particularly for cargoes of liquefied natural gas, deliveries of which may „shave off the peaks and troughs” of market pricing, Bjornson said. Any decision will depend on future views of price, growth in consumption and the regulatory outlook, he said. He declined to say which was more likely. (Bloomberg)