Natural gas loses decades-old tie to oil in landmark deal

|By:, SA News Editor

GDF Suez's (GDFZY, GDSZF) contract to buy natural gas from Azerbaijan shows how the decades-old structure of Europe’s energy market is starting to crumble, according to a Bloomberg report.

For the first time, the French company signed a 25-year contract to buy gas from BP and partners in the Shah Deniz gas project reportedly at prices tied to those in western Europe’s domestic gas markets; the change matters because purchases had been made at prices tied to crude oil, which has doubled in the last five years, an expense then passed on to consumers.

Europe is seeking more flexibility in gas prices as the continent looks to diversify supply; Gazprom (OGZPY) supplied ~30% of EU gas last year, but likely will be competing with exports from the U.S. as well as Azerbaijan in coming years.

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