Long Term Deals to Rule Gas Markets: GECF Chief

Long term contracts will continue to dominate the gas markets including that of LNG with pricing mechanisms based on the oil benchmark, Gas Exporting Countries Forum (GECF) secretary general, Leonid Bokhanovsky has said.

Different physical characteristics as well as ‘relevant simplicity’ of transportation and storage make oil an exchange commodity. The situation with natural gas, however, is different, he said. “For a long time, the gas market was strictly regulated. Now it is changing. Gradual liberalization process was influenced by the introduction LNG technology.

“Of course, LNG is better shaped for trading on spot and futures markets than pipeline gas. Nevertheless, long term contracts will continue to dominate the markets, inclusive of the LNG, with pricing mechanisms based on the oil price,” Bokhanovsky said. He said gas producing countries would continue to work out common approaches to determine gas prices independent of crude.

The GECF is a good platform for this, he added. Bokhanovsky said it was ‘not logical’ to compare GECF with OPEC since these organizations emerged under different conditions and have different aims.

“Naturally, the positive experience of OPEC was taken into consideration in the process of development of the GECF organizational structure, though characteristic properties of oil and gas necessitate different angles of approach,” he said in an interview.

Though the GECF was in existence for a certain period of time, it has become a structured organization only recently. The secretariat was established in Doha only in the beginning of 2010. “Naturally, just like any other organization in creation, we have to rely upon existing international experience. That’s why we use the experience of different international organizations such as the UN, OPEC, and the IEA (International Energy Agency) among others,” Bokhanovsky said. - Gulf Times