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UPDATE 1-IEA head sees no golden age soon for European gas

Thursday, 4 Oct 2012 | 9:46 AM ET

* Golden age of gas not reflected in Europe

* No reason to release strategic oil reserves now

(Releads with comments on European gas market)

By Georgina Prodhan

VIENNA, Oct 4 (Reuters) - Europe is unlikely to benefit soon from a coming golden age of natural gas as unconventional sources will not transform supply of the fuel and oil-linked contracts will keep its prices high, the head of the International Energy Agency (IEA) said.

"The rosy global outlook for gas is not necessarily reflected in Europe today," Maria van der Hoeven told an energy conference in Vienna on Thursday. "The verdict on the golden age of gas in Europe? It's unlikely to emerge in Europe any time soon."

She made the comments just three weeks after the IEA's chief economist, Fatih Birol, re-emphasised his thesis that Europe will benefit from a golden age of gas through the availability of new supply sources.

Gas prices in the United States have halved in the past five years, driven by a boom in shale gas production that has not been matched in Europe, partly due to environmental concerns that extraction can pollute water supplies.

"We do see some possibilities for unconventional gas production in Europe - Poland is the best example - but looking at Europe as a whole we do not see this having a transformative effect," Van der Hoeven said.

Poland aims to be Europe's shale-gas pioneer and wants a legal framework for the development of the potentially lucrative energy resource to go into force next year.

Van der Hoeven said the importance of Russian gas imports for Europe was now overstated, with Russia's Gazprom , the world's largest gas company, putting plans to extract gas from the Arctic seabed on ice, and U.S. demand drying up.

"Russia will continue to be an important supplier but given the hype over recent years, gas trade may not be so overwhelming as it appears," she said. "In terms of volume, gas imports from Russia are not overwhelming compared to other fuels or sources."

She said the European Union's challenge to Gazprom's pricing on European gas markets, which has caused a row between the EU and Russia, was well founded as Gazprom's indexing of gas to oil prices was distorting the market.

"Why has gas proven to be such a thorny issue politically between the EU and Russia? We think the problem lies with OPEC (The Organization of the Petroleum Exporting Countries) and inefficient markets. So the development of functional and efficient markets can depoliticise the gas relationship."

"The oil index pricing structure of many gas contracts is precisely what is keeping prices high in Europe - prices which are cannibalising European demand," she said.

Van der Hoeven also said the IEA, the West's energy policy adviser, still saw the global oil market as sufficiently supplied, with no reason to release extra reserves now.

"There is no reason for action at this moment," she said when asked whether reserves should be released.

"High prices alone are not a reason to release the strategic stocks," she said. "The market in our view is sufficiently supplied."

"Yes, there are always some clear signs of tightness, especially product markets at this moment," she added. "Of course we monitor the markets to see what's happening and we stand ready to act."

Van der Hoeven, who said last month that extra oil being pumped from Saudi Arabia was helping, referred further questions to new reports on oil markets due to be published next week by the IEA, which represents 28 oil-importing countries.

(Reporting by Georgina Prodhan; Editing by Anthony Barker)

((georgina.prodhan@thomsonreuters.com)(+431 5311 2256)(Reuters Messaging: georgina.prodhan.thomsonreuters.com@reuters.net))

Keywords: OIL RESERVES/IEA

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