Europe's Natural-Gas Oversupply Will Last a Decade, E.ON Ruhrgas CEO Says

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.

To contact the reporter on this story: Ben Farey in London at bfarey@bloomberg.net

To contact the editor responsible for this story: Stephen Voss at sev@bloomberg.net

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