Oil/gas price disconnect prompts calls to scrap index

The recent disconnect between oil and gas prices has once again raised the question of whether the practice of indexing gas to oil prices should be dropped, finds Alex Davis

Although long-term contract details are confidential, German border gas price levels – a standard industry indicator – suggest that in recent months, oil indexation has been much reduced in continental gas pricing.

Using oil and oil products indexes as a benchmark for gas contract pricing has been a reliable method for many years. It worked perfectly well when oil and gas moved roughly on the same fundamentals in the same direction. However, the recent gas supply overhang combined with the