Gas market deal stuck in pipeline

Date: 26/09/1996

By Tim Jones

PROFOUND differences between EU member states have dashed pre-summer hopes that a deal to open Europe's gas market to competition could be struck within a matter of months.

In the euphoria which followed the electricity liberalisation agreement forged in June after eight long years of wrangling, industry believed that gas would have an easier ride.

With energy bills accounting for 20&percent; of European industry's costs, leading firms are increasingly putting pressure on their governments to provide them with cheap alternative sources of gas of the kind their US rivals already enjoy.

Irish Energy Minister Michael Lowry fed their growing optimism with a pledge to put gas at the top of his priority list, forecasting a compromise proposal by September and significant progress towards a political deal by the end of December, when Ireland hands over the EU presidency to the Netherlands.

But as the continued log-jam over the liberalisation of postal services has already shown, winning over governments determined to protect major public services can take years rather than months.

“It is hard to see even the next presidency getting a common position,” said a diplomat close to the gas talks.

Despite Lowry's hopes, early negotiations in a Council of Ministers' working group have simply seen long-held positions being restated while, during consultations, transmission companies have made clear their deep-seated fears about liberalisation.

At one extreme, French and Belgian officials are fighting the end of import and transmission monopolies for Gaz de France and Distrigas while, at the other, the UK is pushing for unfettered access to the continent.

Lined up with the British - although less keen on UK-style liberalisation - are Germany, Denmark and the Netherlands.

However, French concerns that liberalisation would undermine the security of the country's gas supply look set to keep a deal on ice. Heavily dependent on imported gas, the French government allows state-owned Gaz de France a virtual monopoly in import, export and distribution.

Paris is pressing for a gradualist approach along the lines taken in the electricity deal, with Claude Mandil, the ministry of industry's director of energy and raw materials, pointing out: “France is neither Britain, with its excess gas supplies, nor the US, with its wide networks of producers and buyers.”

For its part, the UK is determined to secure export markets for British Gas. The company is investing heavily in laying a 550-million-ecu pipeline from East Anglia to Zeebrugge to transmit 20 billion cubic metres of gas - equivalent to one-third of UK consumption - to the continent. At the moment, the company has to negotiate with national suppliers to transmit its gas across their countries, and on their terms.

The Irish presidency, with the help of Commission experts, will begin drafting a compromise plan within a fortnight so that the Council working group can get down to serious horse-trading on 22 October.

Ireland hopes that a meeting of energy ministers on 3 December will give the negotiations the political steer they need before it passes the baton to the Dutch.

But even with the groundwork done, hopes of a deal during the Netherlands' term at the helm appear optimistic.

Officials suggest that the proposal originally drawn up under former Energy Commissioner Abel Matutes in 1993 will be changed in several respects.

The new plan is likely to allow more industrial companies to shop around freely for competing sources of gas than previously envisaged.

Matutes' proposal would only have allowed industrial companies whose gas consumption exceeded 25 million cubic metres per year or distribution companies whose turnover was 1&percent; of national consumption to buy from alternative suppliers. This would have limited free choice to just a handful of Europe's biggest companies.

The changing nature of the market, with more power generators opting for gas rather than coal to produce electricity, has increased pressure on governments to reduce the user threshold.