Norway oil minister favours long-term gas contracts

OSLO, Oct 18 (Reuters) - In the ongoing row between European gas consumers and suppliers over pricing, Norway’s oil and gas minister on Thursday came out in support of long-term gas contracts in order to safeguard the huge investments necessary to uphold supply.

“I think in gas markets you need long-term predictability for producers and consumers because the investments in infrastructure and production are huge,” Norway’s minister for petroleum and energy Ola Borten Moe told Reuters on the sidelines of a conference in Oslo on Thursday.

“You need long-term predictability for the supply side to work,” he added.

But the minister stressed that it was not the Norwegian government selling the gas, but individual companies.

“It’s up to the commercial companies. Norway’s government doesn’t sell gas, and the way they shape their contracts is entirely up to them,” he said.

Most major natural gas exporters to Europe, such as state-owned companies from Russia, Norway, Algeria and Qatar, sell their gas under long-term contracts that are linked to oil prices.

Because oil prices have remained high despite the weak global economy, European power and gas suppliers currently have to buy at high prices linked to oil.

They then must sell to their customers at lower retail prices linked to the spot market, squeezing their profits.

Thierry Bros, energy analyst at French bank Societe Generale, said the extra cost linked to oil-indexation was about $20 billion this year, which will be mostly borne by utilities and consumers.

These losses in their gas business have prompted utilities across Europe, supported by the European Commission, to demand new contracts that are linked to spot prices on gas hubs like Britain’s National Balancing Point (NBP).

Norway already sells more of its gas under spot market terms to customers than other major suppliers, such as Russia.

This is because it is Britain’s main pipeline supplier, where gas is largely traded off Britain’s National Balancing Point (NBP) gas hub.

Analysts at energy consultancy Poyry said that Statoil , Norway’s state-owned oil and gas company, was selling around 50 percent of its gas under spot-indexed contracts.