Europe steps on the gas

Behind the stated objective of the European Commission's gas directive, which came into force on Aug. 10, of "ensur[ing] the free movement of gas and improv[ing] security of supply and industrial competitiveness," is the more nebulous notion of leveling the competitive playing field among those member states exporting and importing gas.

Sep 1st, 2000

Behind the stated objective of the European Commission's gas directive, which came into force on Aug. 10, of "ensur[ing] the free movement of gas and improv[ing] security of supply and industrial competitiveness," is the more nebulous notion of leveling the competitive playing field among those member states exporting and importing gas.

As is necessarily the case, liberalization plans tabled as a byword to lower energy prices and commercial egalitarianism swiftly bring to the fore-at least in the near-term-more questions than answers.

To start, there is the immediate problem of enforcing the pace of liberalization in Europe. Germany, Luxembourg, and France all missed the EC's initial deadline to have opened their gas markets by at least 20%-with European single-market issues underscoring the directive, it will, one supposes, not be a simple task to bring these countries to book.

Moreover, gas in an open market will need to flow down two-way streets or not at all. As UK Minister for Energy and Competitiveness Helen Liddell noted recently, the "long-standing" disparity between UK and French competition policies, as an example, has created a "situation where a French company can enter freely into the UK market," but not the reverse.

Norwegian would

Then there is Norway. Europe's largest gas producer, Norway treats gas with the utmost solemnity-understandable given its Ministry of Petroleum and Energy's forecast of annual production of 3 tcf by 2005-with "all but a small fraction" being exported. State oil company Statoil AS alone has spent 350 billion kroner on its "gas machine" to "sustain or even expand gas supplies to Europe."

But Norway has asked the European Union for a 5-year grace period so as to continue selling gas under numerous deals already set in stone, so here, too, the prospect of a single market has led to foot-dragging.

What price gas?

That gas prices have not fallen to the hoped-for lows expected from deregulation presents another conundrum. The Interconnector pipeline linking the UK and the continent has been in operation for some time, but gas-to-gas competition has done little to uncouple gas price from that of oil-a key proliberalization line of reasoning. Last year's three-fold leap in the latter's per-barrel price would surely have shown up a new positive correlation between the two.

Most broadly, the question of gas replacing Europe's learned dependency on oil rears its head. Though gas-by consensus, and as echoed by EC Vice-Pres. Loyola de Palacio at the Conference on World Oil Market Data in Madrid in July-is the "fastest growing fuel" on the continent; after 30-odd years of steady crude flow from the North Sea, oil remains the "backbone of our energy system" and responsible for more than 40% of Europe's total consumption.

Gas, in taking on the weighty mantle from oil of prime energy source to European industry for the new millennium, is facing a no-less pressurized future negotiating its way through a period of unprecedented political and economic flux. Liddell spoke of the "prize" of a free gas market being worth the labor of achieving it, but the long-term price to be paid for not doing so looks to be the more vital motivator.

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