LONDON: Britain's energy ministry has lowered its medium-term gas price forecast after a number of European gas buyers were successful in re-negotiating long-term supply contracts, it said on Wednesday.
The Department of Energy and Climate Change (DECC) predicts gas prices to average 66.7 pence per therm in 2014, nearly 10 pence lower than forecasts made in October last year.
"This is due to a slightly larger discount applied to the oil linked price to reflect the reporting of additional re-negotiations since those projections were produced," DECC analysts said in a report published on Wednesday.
Long-term gas supply contracts are typically linked to oil prices and a downward revision of DECC's oil price also contributed to a lower gas price outlook, the analysts said.
Beyond 2014, DECC expects the European gas supply to tighten as continued demand growth in Asia means buyers in the east can offer higher prices for liquefied natural gas (LNG) cargoes than their European competitors.
At the same time, energy market liberalisation spearheaded by the European Union and growing LNG export capacity across the world is expected to loosen the gas-to-oil pricing method.
DECC predicts gas hubs in Europe to decouple from oil-linked pricing from 2017-18 onwards.
From 2018 onwards, gas prices are expected to average 73.80 pence per therm.
The department also adjusted its medium-term crude price forecast downward, predicting a price of $111.3 per barrel for 2014, around $6 below its previous estimate. Its 2030 price outlook was unchanged at $135 per barrel.
DECC revised down its 2014 coal price forecast to $97.6 per tonne from a previous estimate of $116.1.
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