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Oil report

E.ON sees spot/long-term gas price split to 2011

LONDON, Nov 11 (Reuters) - E.ON EONGn.DE, one of Europe's biggest gas buyers, expects to pay much more for gas it gets on long-term contracts than it could buy on the spot market until 2011, the world's largest utility said on Wednesday.

A recession-driven gas glut and deluge of liquefied natural gas (LNG) has seen European spot market prices sag well below oil-linked gas contract levels in 2009.

Some analysts expect spot gas prices to remain low until the middle of the next decade, testing big European buyers’ decades-long dedication to oil-indexed contracts. [ID:nLN045012]

But E.ON, which gets more than 90 percent of its gas on long-term contracts which typically run for 25-30 years, remains committed to them.

“It is only a question of time before long-term contracts will become more important for supply security yet again,” E.ON chief executive Wulf Bernotat said in a conference call with journalists following the company’s latest results presentation. [ID:nLB129832]

E.ON executives said in a later call with analysts that while spot and long term gas prices had decoupled as a result of ongoing oversupply of gas and a rebound in oil prices, the two would likely converge again within two years.

The International Energy Agency said on Tuesday there could still be a big surplus of gas in the global market until 2015, but an E.ON executive said the IEA was being “a little bit on the pessimistic side.” [ID:nLA022008]

Reporting by Daniel Fineren and Vera Eckert; Editing by Keiron Henderson

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