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32- www. world- petroleum. org 3.2- Supply and markets Natural gas prices and the link to oil QEveryone talks about oil prices - but what about natural gas? Isn't that important? AIt sure is. Our economy depends on oil. But for a variety of reasons - eco-nomic as well as environmental - devel-oped countries, especially in Europe, have been shifting to natural gas as their pre-ferred fuel for generating electricity. So when the price of natural gas rises, so does the power bill. For some households and many businesses, that's one of the biggest single drains on their budget. Q But are oil and gas prices connected? They're both hydrocarbons. A Yes and no. When oil prices rise, natural gas prices tend to follow. For one thing, when oil prices rise, the cost of producing oil also rises. And because a lot of our natural gas comes from the same place - as " associated gas" that sits next to the oil in a field - the cost of pro-ducing the gas rises, too. Furthermore, in many parts of the world, historical reasons mean that natural gas supply contracts are negotiated based on the oil price. So, for example, in Europe, the continent's largest gas supplier, Russia's Gazprom, was charging customers about $ 450 per 1,000 cubic metres of gas last year. In mid- 2009, new deals were being struck at just over $ 200. Then there's liquefied natural gas ( LNG). Like the gas Gazprom sells through its pipelines to European customers, LNG is also usually traded under long- term con-tracts - for, say, supply over 20- 25 years. These contracts are also based on the price of oil. LNG prices have also been fall-ing lately. Q That's the " yes" part answered. What about the " no"? A The gas sector is segmented along regional lines in a way the global oil market isn't. So in the US, the world's biggest gas market, the discovery of vast new domestic supplies ( see p55) is putting pressure on local gas prices. It happened at the same time as the oil price fell last year, but for a different reason. Then there's the LNG spot market. About 15% of LNG supply is not contracted through long- term arrangements, but gets traded cargo- by- cargo, according to the dynamics of supply and demand. When South Korea and Japan, the two biggest LNG users in the world, need more LNG, their buying can push up prices. However, they've also been hit by the global eco-nomic recession and demand for gas in both countries is way down. LNG will probably stay cheap for a while, too, because countries such as Australia, Nigeria and Qatar have been developing new LNG- export projects. Soon, there could be a glut of LNG on the world market, espe-cially as the US no longer looks like the big market for LNG that many expected it to be. Q So if prices for piped gas get too ex-pensive, everyone can just import LNG instead? A Only if they build special terminals to re-ceive the stuff. In fact, the natural gas busi-ness could really be called an infrastruc-ture business. Pipelines, terminals, lique-faction plants - there's the essence. There's no shortage of gas on the horizon, but once consumption starts to rise quickly again it's the countries that built the neces-sary infrastructure that will have a steady stream of affordable gas. ?? Countries that built the necessary infrastructure will have a steady stream of affordable gas

33- www. energy- future. com Industry facts Let's rock: Groningen field hits 50 1959 Discovery of the Groningen field - Europe's largest gas field. Initial reserves estimates are for 60 billion cubic metres of gas. Over time, that figure is revised up to 2.8 trillion cubic metres 1963 First gas delivered from Groningen field to the Dutch market. The Netherlands becomes a natural gas country 1976 Peak production reached. Groningen produces 84 billion cubic metres of natural gas over the year 1997 Agreement signed for ? 2 billion modernisation of Groningen's production system to combat steadily declining pressure. The programme, involving the installation of compressors in 296 wells to suck the gas to the surface, is completed in 2009 2009 The Groningen field reaches its 50th anniversary, with output in 2008 amounting to 41 billion cubic metres. Around 60% of the field's gas reserves have now been produced, resulting in a 50% drop in reservoir pressure. But the operator, the Netherlands' Nam, expects the field to continue to produce for another 50 years 1959 Fidel Castro sworn in as Cuba's leader. Hovercraft launched 1963 Rolling Stones start their recording career, having formed the previous year. 1976 Steve Jobs and Steve Wozniak form Apple Computer Company 1997 Cloning of the first mammal - Dolly the sheep 2009 Mick Jagger, 66, still in business. Can he keep going for another 50 years?