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Total Exec Says Gas Prices to Become Independent of Oil Prices in Long Term

The price of natural gas will "little by little" become increasingly independent of the price of oil in the long term as liquefied natural gas (LNG) sales increase worldwide and the global spot market grows, a Total executive said Wednesday.

Yves-Louis Darricarrerre, president of Total's Gas & Power business, spoke at CERAWeek 2006 in Houston as part of a panel on global gas. Total, headquartered in France, holds stakes in Cheniere Energy's proposed LNG facility in Sabine Pass, LA, and in the proposed Altamira, Mexico LNG facility, and it also explores for oil and gas offshore in the Gulf of Mexico.

"Gas is this century's new prize," Darricarrerre said. "It will not replace oil. Oil will still supply most of the world's energy for many, many decades to come." But gas' status as a global fuel has grown, and prices eventually will not be indexed to oil prices, he added. Traditionally, oil prices have been indexed to gas at a 6:1 ratio.

Developing gas markets apart from oil "will take time," he said, but the evolving LNG growth -- especially in North America -- is "driving deep-seated changes in the market," which will slowly set gas apart.

"Right now, gas prices are linked to oil by contract all across Europe, but the spot market is emerging," he said. "Prices don't always follow oil price trends. Oil and gas are increasingly used for different purposes. Oil is mainly used for transport, and this trend will grow, while gas is used more for power, which is growing very strongly. Gas prices increasingly will be determined by the power generation market with coal as opposed to oil."

Darricarrerre expects gas to compete as a fuel with coal, but he noted the many environmental concerns coal faces. "Here, gas has the clear lead. And the world's gas reserves are abundant. It is gradually gaining its independence from oil...with business growth, and the emergence of worldwide spot markets, which will create a truly global market. LNG projects are abundant and there are considerable reserves worldwide."

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