"Gas demand is growing strongly but for the first time in nine years, there are doubts that the recent rate of growth can be sustained because of the oil environment," Mustapha Faid, president of French consulting firm SPTEC said at a gas conference in Paris last week.

Even in the few liquid wholesale gas trading hubs, like Henry Hub in the United States and Britain's National Balancinng Point, there is a correlation with oil prices.

Gas demand is forecast to grow faster in absolute terms than any other energy source, mainly driven by demand to generate power, almost doubling to 4,900 billion cubic meters in 2030, according to the West's energy watchdog, the International Energy Agency (IEA).

But in its World Energy Outlook published this week, the IEA revised slightly down its annual gas growth to 2.3 percent, mainly because high gas prices forced industry and power generators last year to switch to cheaper fuels.

"Gas demand growth is patchy after strong growth in the '90s. There is a lot of uncertainty because of competition in power production from coal and nuclear," said David Fitzsimmons, BP vice president for gas, power and renewables.

He said there was a view that coal prices, which have doubled in the past year, will fall while much more lenient than expected carbon emission quotas in the European Union's carbon trading scheme would not discourage the use of the highly polluting fuel.

Germany, in particular, proposed generous carbon quotas in its national allocation plan (NAP).

"In Germany, the NAP has not jeopardized coal-fired power stations and gas will have to compete with coal without the environmental benefit," said Jochen Weise, board member of German utility E.ON Ruhrgas.

The challenge from nuclear generation is even greater as it produces hardly any greenhouse gases, while fuel costs account for only seven to 10 percent of generation costs compared with 70 percent for a gas-fired plant.

In Europe, France and Finland are going ahead with new nuclear reactors, the Netherlands has delayed an early closure of one and Belgium is reconsidering its exit from atomic power. "Europe is oversupplied (with gas) but high prices send signals to use less, to invest in coal and nuclear power stations and to produce more gas. There is a risk of oversupply," said BP's Fitzsimmons.

GAS BUBBLE

Declining gas production in the UK has also triggered several new import projects, both pipeline and import terminals for liquefied natural gas (LNG), gas that is super-cooled so that it can be shipped from more remote areas.

The importance of LNG has risen because of high gas prices.

Last year the growth in LNG trade was exceptional, up 12 percent, partly fueled by record U.S. gas prices, and it is expected to continue to grow at about seven to eight percent a year, executives projected.

But a gas bubble could decimate prices in Northwest Europe, cutting them by 20 percent by 2010, or in the order of 10 billion euros, E.ON Ruhrgas' Weise said.

"The loss in market value seems possible by 2007/2008. Loss of significant market value might endanger future projects to secure long-term supplies to the EU-25," he added.

Europe needs to spend some $842 billion by 2030 on generation to replace aging plants and meet growing consumption, but high gas prices also raise the risk in building new power stations.

French utility Suez, which has projects to build power stations in Italy and Spain which have some of the highest power prices in Europe, said current gas prices still allow it to go ahead with its plans.

"But in a situation where you are considering huge investments and gas prices are high, it's a huge problem," said Guy Nossent, Suez strategy director.