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Gas and oil prices to continue to diverge through 2010

Oil and natural gas prices will continue to diverge next year and possibly beyond

By NJ Watson

Oil and natural gas prices will continue to diverge next year and possibly beyond, the deputy head of GDF Suez told delegates here yesterday.

Jean-François Cirelli said that while gas prices remain depressed – following the slump in demand caused by the recession – the oil price seems to be diverging from its fundamentals. "There have been disconnects in the past, but today's is of a greater magnitude," he said.

Cirelli and the previous keynote speaker, George Kirkland, head of upstream and natural gas at Chevron, said today's low prices are increasing the risk of underinvestment in the gas sector over the next two decades.

Kirkland referred to International Energy Agency forecasts that global gas demand will rise by 50% by 2030, and that to meet that extra demand the industry will need to invest an additional $5.5 trillion – or $227bn a year – for the next 20 years.

"I believe three fundamental things must happen to make this demand growth," he said. "First, development costs must continue to come down; second, our industry must invest for the long term; and third, we must focus relentlessly on superior project execution."

However, he also noted some signs of cost pressures beginning to ease; so far in 2009, capital costs have fallen by 12%, he said, quoting research by Cambridge Energy Research Associates, a consultancy. But "for projects to be developed economically, there need to be further cost reductions," he said.

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