By an OGJ Online correspondent
PARIS, Feb. 7 -- The French gas industry's "relatively rigid" supply system does not readily lend itself to competition, according to France's Energy Regulatory Commission (ERC), which now regulates both the country's electricity and gas market since Parliament officially opened France's gas market Jan. 3.
"The situation of France's gas supplies at the time of the opening of the European markets is not favorable to spontaneous competition," ERC noted.
ERC, chaired by Jean Syrota—who has long been a major official in France's energy administration—explained that gas supplies are relatively rigid because they depend on a small number of long-term contracts with large external producers.
ERC standpoint
ERC made several observations:
-- Unless Gaz de France markets a significant part of its contractual engagements outside of France, the country's supply-consumption mix will remain saturated for at least 5 years.
-- Large gas exporters are not prepared to compete with their own historic clients by selling smaller quantities of gas to other consumers at a cost lower than their long-term contracts.
-- Because of its excessive distance from gas delivery points, coupled with an insufficient transport network within the area, southern France suffers high transport costs that restrict or even prevent competition.
ERC pointed out that, unlike electric power, natural gas supplies are derived from a small number of outside sources, and their transport networks are not tightly knit, so that distance becomes a significant part of the product's cost and limits the possibilities of making tariffs equal geographically.
France's consumption, imports
France's natural gas consumption in 2002 amounted to 43 billion cu m, of which 47% was for industry, 36% for the residential sector, and 17% for the commercial sector. Average annual growth during 1997-2001 was 5.7% for industry, 3.6% for residential, and 5% for commercial.
Very few electric power plants in France are currently gas-fired. Imports account for most of France's needs, and essentially come from Norway, 29%, Algeria and Russia, 25% each, and the Netherlands, 13%, under long-term, take-or-pay contracts, which, on average, extend over the next 15 years.
GdF has recently extended its contract with the Netherlands for an additional 10 years from 2003 and signed a new contract for natural gas from Egypt.
Therefore, ERC pointed out, imports of new gas supplies into France are greatly limited in the short and medium term. Short-term gas imports accounted for only 5% of the national energy mix in 2001. "In this context, (GdF) is much more able than the new competing operators to arbitrate, at all times, between the terms of the long-term contracts and those of the spot market," ERC said.
Changes needed
While some countries, such as the UK, Italy, and Spain, in like circumstances have required their historic operator to hand over a fraction of its release gas to new operators on a temporary basis, France might first need to introduce new terms for third-party access to the network, particularly tariff terms—pending stronger measures if this did not suffice. New access terms would serve two purposes:
-- To reestablish a symmetry between the new operators—which frequently have only one supply point—and GdF, which can minimize transport costs through access to all the country's import points.
-- To widen the geographic area from which consumers can access new operator services.
Existing infrastructure
France's transport network is 36 000 km long and belongs 88% to GdF, 10% to Gaz du Sud-Ouest (GdS, a subsidiary of TotalFinaElf SA 70% and GdF 30%), and 2% to a subsidiary of TotalFinaElf and a national banking group.
Part of GdF's network in central France is operated by Compagnie Française du Méthane (CFM), a subsidiary of GdF 55% and TotalFinaElf 45%. GdF, CFM, and GSO operate third-party access to the networks in their respective areas and sell the gas to their industrial and commercial clients. Opening up the market puts them in competition in the trading business. ERC said it is advisable that the joint ventures of GdF and TotalFinaElf be broken for stronger competition, including the JVs for France's underground gas storage capacity of 12 billion cu m (13 units for GdF and 2 for TotalFinaElf in the Southwest).
In addition, 75% of gas imports arrive in northern and eastern France and 25% through two LNG terminals—one at Montoir on the Atlantic coast and one at Fos on the Mediterranean Sea. The Montoir terminal has a spare capacity of 2 billion cu m/year, and Fos has1 billion cu m/year of spare capacity. Although the gas liberalization law provides for regulated third-party access to LNG terminals, current GdF tariffs constitute a barrier for spot LNG imports that might otherwise enhance competition. Additional LNG capacity would help prevent North-South supply congestions, ERC said, and permit an extension of competition in southern France. In the longer term, new terminals will need to be built in the south of France and interconnection capacities with Spain increased.
ERC notes that, so far, no eligible client has taken advantage of the opening up of the gas market in the South of France.
Even if competition should remain limited in the foreseeable future, ERC insists that the role of the regulator will be to ensure competitive conditions for transparent and fair access to the French market, including introducing more flexibility into the contractual terms of third-party access to the transport network and auxiliary services in line with the best European practices.
