UPDATE 1-E.ON Ruhrgas sees years-long European gas glut

Wed Aug 25, 2010 9:05am EDT

Related Topics

* Gas glut may remain for 3-5 years, economic recovery key

* In talks to renegotiate long-term gas supply deals

(Adds quotes, details)

By Wojciech Moskwa

STAVANGER, Norway, Aug 25 (Reuters) - Germany's leading gas buyer E.ON Ruhrgas (EONGn.DE) said it expected European gas markets to stay oversupplied in the medium to long term and it was in talks to renegotiate long-term contracts with suppliers.

"We said the medium to long term, which means not something that we are likely to see in three to five years," Chief Executive Klaus Schafer said on being asked when Europe's gas glut would end.

"It depends very much on the pick-up of some of the economies of Europe and depends on the question of conversion of some power plants from other fossil fuels to gas," Schafer told reporters at a oil and gas conference in Norway on Wednesday.

"It will not last forever but for quite a while."

E.ON's wholesale gas unit, one of Europe's biggest gas buyers from Russia, said that it was in talks with suppliers to change long-term gas supply contracts.

These contracts do not reflect the recent decoupling of spot prices from those in long-term deals and need to be more flexible to take into account changing economic conditions in Europe, it said.

"We believe that the long-term contracts need to be re-engineered for future decades, not just renegotiated as in the past but put on new terms that mostly reflect price levels, flexibility and indexation of price formats," Schafer said.

E.ON said talks were continuing, but results were scant so far. "We have already achieved something but still have a way to go," said Hans-Peter Floren, a member of the E.ON Ruhrgas management board.

Schafer said gas consumption in Europe tumbled by 7 percent last year and by 5 percent in Germany. Also, shale gas discoveries have made the United States more self-reliant and have diverted more LNG (liquefied natural gas) supplies to Europe -- all helping to push down spot prices.

"Experts expect the share of LNG in EU30 (30 European countries') gas supplies to rise from about 10 percent now to 24-25 percent in 2020," Schafer said.

(Editing by Jane Baird)

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