(BN) Gas Oversupply Will Last a Decade, E.ON Ruhrgas Says


Gas Oversupply Will Last a Decade, E.ON Ruhrgas Says (Update1)
2010-11-10 11:04:55.524 GMT

(Updates with comments on gas prices in fourth paragraph.)

By Ben Farey
Nov. 10 (Bloomberg) -- Europe's natural-gas oversupply will
remain for the next decade, E.ON Ruhrgas AG's chief executive
officer said today in Berlin.
"The gas glut will remain for the next decade," Klaus
Schaefer, the head of E.ON AG's natural-gas unit, said at the
European Autumn Gas Conference. "A return to the equilibrium is
still some way out."
The oversupply will peak next year or in 2012, said
Schaefer, appointed CEO three months ago. Europe's gas demand
rose in the first half and E.ON estimates the region's
oversupply at 30 billion to 40 billion cubic meters, he said.
Gas may be entering a "golden age" as demand increases
for the cleanest-burning fossil fuel, the International Energy
Agency, said yesterday. European consumers of gas, such as E.ON,
Germany's largest utility, have multiyear contracts linked to
crude and oil-product prices. Last year spot gas prices dropped
to about half the level of long-term contract prices, leading
customers to seek more flexible terms from producers such as OAO
Gazprom, Russia's gas export monopoly.
While Germany's gas demand increased in line with the
European average in the first half, it fell 15 percent in the
third quarter, Schaefer said. On a temperature-adjusted basis
the country's gas demand fell 1 percent in the three months and
will be the same as in 2009 for the full year, he said.
"In our view it is way too early to speak of a stable
recovery of consumption or even a return to growth," he said.
Long-term contracts will remain the "backbone" of the
industry "but they need to be reengineered and adapted to the
liquid market," Shaefer said. "Why peg the new energy to the
old one?"
The current situation is "simply unsustainable," Schaefer
said. The price of gas is increasingly determined by gas-to-gas
competition and changes to the market were "absolutely
lasting," he said.

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--Editors: Rob Verdonck, Stephen Cunningham

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