Innovative Centrica/Enron gas contract paves way for future market deals

Centrica and Enron Europe today announced that they have entered into a firm, 10-year natural gas sales agreement under which Enron will supply to Centrica volumes of natural gas in excess of 5 billion cubic metres over the term of the contract.

This sales agreement, which begins in 2001, links the price of natural gas to the screen-based International Petroleum Exchange (IPE) Natural Gas Futures Contract. It is believed to be the first such long-term gas sales contract which utilises this IPE market index in its pricing structure. Terms of the contract were not released.

Jake Ulrich, Managing Director of Centrica's energy management group, said: "This is an innovative deal which paves the way for a new type of long-term contract in keeping with the competitive market. The long-term purchase of gas at a market-responsive price enables Centrica to compete with the knowledge that its supply costs will remain in line with the market."

Enron Europe's CEO, Mark Frevert, said: "Enron is very pleased to enter into this significant long-term relationship with Centrica. This flexible, market-responsive pricing structure presents both parties with a new opportunity to manage both physical and financial risk inherent in the UK gas market. It further demonstrates the key role that a natural gas futures contract can and will play in the evolution of a more liquid and competitive European energy market."

Richard Ward, the IPE's executive vice president responsible for business development, said: "Centrica and Enron's decision to use the IPE's Natural Gas Futures price as a benchmark for this significant deal is a major vote of confidence in the contract. The IPE is delighted that the transparency, liquidity and security offered by the Natural Gas Futures Contract are providing the industry with a reliable and credible benchmark for physical transactions."