Germany will need 6-9 billion cubic meters/year more gas to compensate for the closure of its nuclear plants in 2022, analyst Emmanuel Fages at Societe Generale told Platts Monday, not 16 Bcm/year, as the International Energy Agency said last Friday. "It depends on the hypothesis, but a 1 GW plant uses about 1.2 or 1.2 Bcm/year at baseload," Fages said. For 16 Bcm/year to be needed, as the IEA says, the assumption is that all the replacement fuel will be gas, to reach the total of 20 GW. But coal and renewables will also fill the gap, said Fages. "If you look at what is being built, of the 13 GW, 11 GW are coal or lignite. Coal will be the first." He also said a large part of the missing nuclear would be replaced by renewables. "Gas will be at maximum one third." OIL INDEXATION POSES DILEMMA In a report on European power markets published Monday, SocGen said that oil-linked contracts for gas would continue in Europe "because it is impossible, barring arbitration, for continental European buyers to obtain material changes from Gazprom." "We believe 56% of the gas sold in Europe is under oil-linked formulas. In Continental Europe alone the oil-linked gas price contracts account for 69% of gas sold. Barring arbitration, the majority of gas should continue to be sold under oil-linked formulas in Europe." So far, nobody has this year taken the Russian monopoly exporter to court to seek relief from the high price of oil-indexed contracts, its long-term pricing division head Sergei Komlev told Platts last week. "But we have a new gas conundrum in Europe," said SocGen. "With power prices completely liberalized in Europe, it now appears impossible, and unacceptable, for utilities to commit to further oil-linked long-term gas procurement contracts. This rules out the use of oil indexation contracts to purchase any extra gas needed from 2016 to replace nuclear." "It is therefore now time for major gas producers (notably Gazprom) to think about alternative indexation methods for pricing this additional gas requirement. Either producers stick to oil indexation and no new contracts may be signed as European utilities cannot bear any additional risk or producers try to meet the new demand for power generation and provide contracts acceptable for the power industry, in which case we could witness a renewed dash for gas." "Furthermore, the string of Norwegian production failures in recent months might start to tarnish Norway's hard-won reputation as a reliable gas supplier. And security of supply and trade imbalances could play against extra gas for power generation. Higher spot prices this summer could already be a deterrent to moving from nuclear into gas-fired power stations." --William Powell, william_powell@platts.com

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