The long period of phony competition is over in Britain's industrial market for gas.
From the day British Gas Corp.'s monopoly was privatized in 1986 and became British Gas plc, the new company and the conservative government have paid lip service to the idea of competition in this market.
Transforming a state monopoly into a thriving competitive business sector takes more than good intentions, as the new companies established to exploit opportunities have discovered.
NEWCOMERS GET A SHARE
Even though many of the new gas marketers have the financial muscle of international groups behind them, taking a big slice out of the market supplied by British Gas was difficult in the absence of short term gas supplies.
But under the constant harrying of market regulators, the Office of Gas Supply (Ofgas) and Britain's Office of Fair Trading (OFT), British Gas has been "persuaded" to loosen its grip on contracted North Sea reserves that are so vital in making competition a reality.
The Ofgas campaign culminated in a historic agreement between British Gas and OFT under which the company has agreed to reduce its share of the industrial market, make more gas available to potential competitors to take on new customers, and incorporate its nationwide gas transmission and storage system into an independent subsidiary.
By 1995, the British Gas share of the industrial market must have fallen to 40% from the current 90%, providing an opportunity for the new breed of gas suppliers to create an additional market worth about 900 million ($1.55 billion).
Starting next October and continuing through 1993 and 1994 British Gas has agreed to release 50 bcf/year of contracted gas to competitors and to make a further 25 bcf available in the year beginning in October 1995.
That should ensure there is enough gas available to new companies to service their new customers.
British Gas also is committed to the arms length pipeline and storage company being fully operational Jan. 1, 1994. This company will treat British Gas and the new supply companies on an equal footing. New price arrangements will be operational from the beginning of next year.
The evolution of the U.K. gas market has been closely followed by the European Community, which wants more competition in continental Europe.
And it has undoubtedly been noted with increasing unease by the established continental gas companies whose ideas about competition do not match those of the EC in Brussels.
PRESSURE OFF FOR NOW
While the OFT agreement may have lifted pressure from British Gas in the short term, the company probably has earned only a breathing space to effect the transfer of its industrial market share.
Longer term, disciples of the free market want competition extended to the residential sector where British Gas is still a monopoly supplier. After the success of the campaign to wrest a chunk of the industrial market away from British Gas it is difficult to imagine that the residential monopoly will last very long.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
