Gas industry powers its way towards bright future

Date: 15/10/1998

By Chris Johnstone

TWO very different developments in recent days have provided fresh evidence that Europe is set to embark on an unparalleled switch to gas in the next decade.

At the start of this week, a new pipeline between the sleepy Norfolk village of Bacton in the UK and Zeebrugge, Belgium, officially started pumping cheap supplies of British gas to mainland Europe.

A few days earlier, British Trade and Industry Minister Peter Mandelson decided that steps were needed to curb the gas industry's grasp of an ever-increasing share of the UK's domestic power market.

Mandelson's package of measures aimed at limiting the number of gas-fired power stations mushrooming across the land will only pump up the pressure for excess supplies to be piped to Europe.

The list of declared customers for the new 'interconnector' reveals that an overwhelming proportion of the early gas shipments are heading towards Germany, with upstart new entrant gas company Wingas in the forefront of import orders alongside more established companies such as Thyssen Gas and Ruhrgas.

UK gas, some of which is actually piped from Norwegian fields, is cheaper than that in the rest of Europe, thanks in part to the competitive market which has developed in the country over the past decade.

Some energy analysts predict that the interconnector's capacity to pump 20 billion cubic metres of gas a year to mainland Europe will spark a pre-liberalisation shake-up of the market.

Under EU rules, Europe's biggest industrial consumers of gas as well as power stations should be free to shop around for the cheapest supplies from the middle of 2000.

Sceptics point out that 20 billion cubic metres a year is a relatively insignificant amount compared with overall European gas consumption of around 350 billion cubic metres a year, and that many of Europe's gas giants are still tied to long-term supply contracts with prices and conditions which were set years ago.

However, the UK-Zeebrugge pipeline is not the only development which is laying the foundations for a fiercely competitive gas market when the gloves come off in under two years' time.

Thousands of kilometres of pipeline are being laid, or planned, across Europe over the next few years as many of the gaps in the current infrastructure for gas transportation are filled.

The European Commission is set to propose that around a dozen new pipelines should be earmarked as priority projects under its Trans-European energy Networks (TENs) plan, although this will have to be approved by Union government ministers and the European Parliament.

Historically, the European gas network has been much less developed than that of the electricity industry. But that is changing rapidly, with predictions that gas will supply around one-third of the EU's overall energy needs by 2020 compared with about one-fifth now.

By the end of this year, one of the longest pipelines under the sea ever constructed will connect Dunkirk, France, with Norway.

The NORFRA pipeline, which has an initial capacity of 14 billion cubic metres and the possibility of adding another 6 billion cubic metres, will bring a new source of cheap gas to a market which has been slow to take up on this form of power.

Gas currently contributes less than 16% of France's energy needs compared to an average of around 22% across the rest of Europe. With many of the country's nuclear plants heading for decommissioning within the next 15 years, gas is being examined as a relatively cheap and less contentious alternative to more nuclear power.

Germany is also set to inaugurate its WEDAL pipeline, which will significantly diversify its supply lines by linking up to the Belgian network, enabling it to buy British gas. The current network only allows cheap Russian gas to be brought in from the East and Norwegian gas from the North.

Perhaps the biggest project of all is the Nordic gas grid project which would link the Baltic States, Finland, Sweden, Norway and Denmark.

This is already on the EU's list of TENs energy projects and, as such, has received funding to help pay for a feasibility study. The results will be announced at the end of this month in Stockholm.

This network, stretching over more than 1,000 kilometres and costing between 3 billion and 4 billion ecu, would allow Finland to import Norwegian gas as an alternative to Russian supplies and would bring gas, whether Norwegian or Russian, to Stockholm and a large part of Sweden's population and industry.

Commission officials say that diversifying Finland's supply would prevent Helsinki from invoking a clause in the gas directive which would allow countries with underdeveloped infrastructure to delay moves towards market-opening.

In southern Europe, where a lack of pipelines has made gas an also-ran in the power battle, smaller pipelines are planned linking Greece, through Bulgaria, to Russian reserves.

A new pipeline across the Straits of Gibraltar will also eventually allow Spain, Portugal and France to be connected to Algeria via Morocco.

Longer-term projects which are currently still on the drawing board include bringing the enormous gas reserves of the Caspian Sea towards south-east Europe and supplies from the massive gasfields of the hostile Barents Sea to northern Europe.

Even where pipelines are not under construction, special facilities at ports to store highly combustible liquid gas are being developed, especially in Spain, Portugal and Greece. More efficient technology for transporting liquid gas means some consignments are now being shipped to Europe from as far away as Abu Dhabi in the Middle East.

If yesterday belonged to nuclear, and the day before to coal, then everything points to tomorrow being the age of gas.