Skip to Main Content
August 04, 2011
Article Co-Authored by Brattle Economists on Oil-Price Indexation for Gas Contracts Published in Petroleum Economist

Brattle principals Serena Hesmondhalgh and Dan Harris co-authored an article on oil-price indexation for gas contracts, which was published online today and will be featured in the September issue of Petroleum Economist.

In their article, “Easing the transition from oil-indexation,” Dr. Hesmondhalgh and Mr. Harris discuss how pricing for long-term gas contracts has historically been indexed to prices of alternative and competitive fuels other than gas, such as oil. This relationship has changed, however, as oil and gas prices have diverged significantly over the past few years. An imbalance in supply and demand due to the financial crisis, resulting in less demand for gas as well as electricity, is the primary cause of the divergence between prices.

Dr. Hesmondhalgh and Mr. Harris explain that gas-to-gas competition, in which end-user prices are often dictated by the need to beat a cheaper offer from a rival supplier, will change how long-term import contracts are priced. This trend will end oil-linked prices and create a fully liquid gas market.

The entire article is available on the Petroleum Economist website.