More hurdles in dash for gas

In some quarters, the argument runs that gas will almost singlehandedly fuel the industrial and domestic future of Europe–but this is far from saying there aren't serious hurdles to surmount in the present.

In some quarters, the argument runs that gas will almost singlehandedly fuel the industrial and domestic future of Europe–but this is far from saying there aren't serious hurdles to surmount in the present. As discussion at last month's Norwegian-British Energy Seminar in Oslo made clear, even the mechanism that promises to put the wheels in motion for a single "open and competitive" Europe-wide gas market–the European Commission's Gas Directive–still finds itself open to harsh criticism by some observers.

The EC directive, designed around the belief that competition will necessarily place a downward pressure on energy prices, was rolled out last August to much fanfare–and some resistance.

Germany, Luxembourg, and France did not meet the deadline for opening their gas markets by the minimum 20%. Norway, a European Economic Area member though not one of the European Union, asked that it be allowed a 5-year transition period to tie up standing long-term gas supply contracts.

Norwegian will

Despite the Norwegian government now looking like it will bend to the will of the EC and endorse "relevant and acceptable" EU legislation, including the gas directive, the issue remains one addressed with nationalistic fervor. This is not surprising, given that the country, one of Europe's big three gas suppliers along with Russia and Algeria, expects to export "all but a small fraction" of its annual production of 3 tcf by 2005.

As a number of Norwegian delegates to the Oslo seminar stressed, the EC's attempts to bring Norway's Gas Sales Negotiating Committee to heel under the directive and recast sales deals set up as early as 1987 on the back of production financed by the field partners involved, smacks of "prejudice."

There could also be a case made, others said, for the EC's pressure tactics being akin to biting the hand that will in the future feed you, when one considers the emphasis regularly placed by the EC on security of supply–in tandem with the relative reliability of future supply from the other two big gas suppliers to Europe.

Gas Directive II

The enforcement of competition by the gas directive has, so far, been modest. Though the EC now estimates that 78% of the EU gas market is open to competition, the remaining 22% will remain a serious sticking point with some member states vocally opposed to the directive. And given the broader economic issues underpinning a single European market, it will be tough to bring these countries into line.

Gas Directive II, as it is being called, will try to set things straight. Through the updated directive, Loyola de Palacio, EC vice-president for energy and transportation, aims to accelerate the process of creating a fully operational internal market–opening the market for domestic customers by 2004 and for all by 2005. Seven member states are said to be aiming for 100% deregulation by 2008.

The primacy of gas to future European industry aside, a question mark must hang over a directive facing problems of political will, the arguable need to split the sales and transmission function of existing gas network operators, and potentially anticompetitive take of pay commitments–whose first draft took 6 years to negotiate.

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