GET READY FOR BLASTOFF !Natural Gas to Converge With Record Oil, Qatar and Algeria Say
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By Ayesha Daya
July 2 (Bloomberg) -- Natural gas, trading at a 39 percent discount to crude, may rise to reach the record price of oil as demand for cleaner-burning fuels increases, according to energy ministers from Qatar and Algeria.
U.K. natural gas sells for 72.15 pence a therm, or the equivalent of $86 a barrel based on its energy content, compared with $141 for Brent crude. British natural gas rose 38 percent this year, lagging behind the 51 percent advance in oil.
Natural-gas use worldwide rose 3.1 percent last year, almost three times faster than the 1.1 percent increase in oil, according to figures compiled by BP Plc. Gas is cleaner-burning than oil and creates half as much carbon dioxide as coal when used to generate power, helping ease the buildup of greenhouse gases blamed for climate change.
``Gas is clean and it is an alternative to oil,'' Qatar Oil Minister Abdullah al-Attiyah said in an interview in Madrid this week. ``The price should be at least competitive to oil.'' Qatar holds 895 trillion cubic feet of gas reserves, the world's third-largest, after Russia and Iran.
Rising global energy demand, environmental restrictions and slower progress in expanding nuclear power and wind farms are increasing demand for gas.
Liquefied natural gas may become more expensive than crude oil as demand from Asia and Europe rises faster than supply, Sanford C. Bernstein & Co. said in a report last month.
Winter Prices
In Japan, utilities paid as much as $20 a million British thermal units for liquefied natural gas imports last winter, which equates to an oil price of $120 a barrel, after an earthquake closed the country's largest nuclear power reactor. U.K. prices for the 2008-2009 winter trade at a similar level.
``Gas prices will follow oil prices; they will converge,'' said Algerian Energy Minister Chakib Khelil. The country is scaling back oil production growth to concentrate on gas.
``Our efforts are really focused on gas,'' he said. Exports will rise 37 percent by 2012 to 8.5 billion cubic feet a day, said Khelil, who is also the president of the Organization of Petroleum Exporting Countries. Al-Attiyah and Khelil are in Madrid this week for World Petroleum Congress.
Global trade in LNG expanded 7.3 percent last year to 226 billion cubic meters, led by increased shipments from Qatar and Nigeria, according to the annual review of world energy by London-based BP. About twice as much gas is imported across national borders by pipelines, where Russia is the biggest supplier, exporting 148 billion cubic meters last year.
Iran No. 2
Iran halted a gas supply deal to the United Arab Emirates since 2006 to negotiate a higher price than agreed in 2001. Iran hasn't built new liquefaction plants, in part because western companies including Royal Dutch Shell Plc and Total SA are wary of U.S. sanctions.
Qatar, the biggest shipper of LNG, is diverting some cargoes destined for European to Asia, where prices are higher.
Nigerian President Umaru Yar'Adua said in May that gas export agreements will have to be renegotiated to ensure Africa's most-populous nation has enough for its domestic needs.
Algeria took Spain to an international tribunal to raise the contracted prices for gas supplies.
``The gas was sold in 1995, when oil was at $15 a barrel,'' Khelil said. ``When oil rose to $50 a barrel a few years ago, we decided to renegotiate.''
To contact the reporters on this story: Ayesha Daya in Madrid at adaya1@bloomberg.net
Last Updated: July 2, 2008 03:51 EDT