GAZ DE FRANCE CHAIRMAN FRANCIS GUTMANN OUTLINES GDF GLOBAL STRATEGY

In an interview with Oil & Gas Journal, Gaz de France Chairman Francis Gutmann outlined his company's new policy of greater international exposure as it strives to achieve what he calls "worldwide strategic dimension."

GAS MARKET OVERVIEW

Gutmann noted that more than 3 years has passed since the world gas market has shifted from a buyers to a producers' market.

In addition to normal demand growth in europe, the rejection of nuclear power in a number of countries such as Italy and Spain has sharply boosted demand, he said.

"It is this unhealthy, massive new demand for gas fired electricity that is weighing on the marked. Added to this, we are facing the uncertainties of future production for which investments have not yet been decided.

"Gaz de France has ensured its supplies to 2010-2015. There is no immediate pressure for new supplies. But we cannot remain complacent. We must start thinking about future combinations now and position ourselves in a gas market that is opening up to reach global dimension."

Gutmann noted that until recently the three main gas trading regions of the world - Europe, the U.S., and Far East - largely ignored one another because of the high transport costs in interregional trade.

"The trend now developing is competition at the frontiers of each region," Gutmann said. "Nigeria is poised to supply the U.S. and Europe, as is Algeria. Japan and Korea buy their gas from the Middle East, and Europe most likely will do the same one day.

"In a market where barriers will progressively be lifting to become global, only major gas companies will be significant protagonists. This is why we are building to critical size by taking positions at the strategic junctions of future supplies.

"The first priority of our international strategy is to develop a close relationship with our suppliers and especially with our main suppliers, Algeria and Russia, as well as with the countries through which their gas transits before reaching us."

RELATIONS WITH RUSSIA

Gutman sees GDF's relationship with Russia hinging on how the company deals with Gazprom, the giant agency charged with marketing Russia's huge gas supplies.

"Gazprom represents the whole of Russia's gas industry," Gutmann said. "Unlike the administrations involved in the oil industry, it has retained its integrity. We have a good relationship with Gazprom and we are trying to adapt to its changed outlook.

"Like all former Soviet technical ministries, it has become a large public corporation, and its attitude and behavior are changing accordingly. For instance, it has formed a joint venture with Germany's Wintershall that reportedly aims to secure the entire production from new Russian gas fields in the future.

"Although Germany is a specific problem, I cannot imagine Gazprom putting into a single German join venture its main export resources. I am not certain that it is Gazprom's intention to go downstream, for this requires huge outlays. Gazprom must remain selective in its downstream, which must be linked to its own exports. The Yamal Peninsula gas fields will require 25 billion francs ($4.75 billion) top develop, not counting the gas line.

"More probably, Gazprom will have a privileged relationship with Wintershall in Germany, where it already has contracts with Ruhrgas.

"What can Gasprom's policy really be? Will it be able to develop new gas fields? Under what conditions? Will it be able to lift the gas produced? A start should certainly be made before the end of the century."

GDF also is involved in helping Russia attain western standards of energy efficiency. Gutmann sees enormous potential in conservation measures in Russia's gas industry.

"We have reckoned that the potential of gas saved could amount to three times France's annual gas consumption. But energy conservation is a new notion in the former Soviet Union, and it is proving uphill work to try changing ingrained behavior. It can be done only through a multiplicity of operations, with the payback of extra natural gas resources."

REGIONAL PRIORITIES

GDF is setting its sights mainly on that region where the large gas producing and potential areas of Russia, Iran, and the other Middle East countries coverage, Central Europe, and major gas markets of western Europe.

"There is room there for us to increase our critical mass. Central Europe will be developing into a gas subregion, but the process will be a lengthy one."

In the U.S. and Canada, GDF is capitalizing on its expertise in gas underground storage to learn about a market unfamiliar to the company, Gutmann said.

"There are no (national gas utilities) in the U.S., but there are major transporters and distributors. We hope to improve by learning about the market. We have chosen very specific areas at the junction of large networks. They will need storage for greater market flexibility."

Liquefied natural gas projects figure to be a major part of GDF's regional strategies.

"With the LNG market expected to grow threefold during the next 20 years in Europe, we are investing heavily in research to cut costs all along the chain. This is crucial to LNG development worldwide and to development of new projects. We are anxious to position ourselves at this strategic junction of gas development. It might, perhaps, give us a good negotiating hand."

EUROGAS/EEC DEREGULATION

A critical issue for the future of Europe's gas industry is the European Economic Community Commission's recommendations for deregulating access in the continent's gas markets.

Eurogas, the European gas distribution company association, opposes those measures. Eurogas included European Economic Community utilities - expect for those in Portugal, Greece, and Luxembourg - as well as those in Austria, Switzerland, Sweden, and Finland.

"As president of Eurogas, I try to act not as the representative of GDF but as an impartial arbitrator, for I'm not sure that GDF and other Eurogas members always have the same objectives.

"All these companies don't have the same interests, and I can play a more credible and useful role if I remain independent. There is close cooperation between Eurogas and EEC Commission inmost arrears. But Eurogas is almost unanimous in rejecting the commission's project to introduce third party access to the EEC's gas network as well as to scrap monopolies.

"The problem is not political. It is economic. there can be no question of weakening Europe's gas industry through the fragmentation that third party access would bring about. This would compromise the huge investments needed for new long term natural gas supplies.

"Like France, the EEC is more a gas importer than producer. And while its supplies are ensured through the 1990s, supplies must be found for 2000-2020.

"Instead of sterile, theoretical debates, the commission should start thinking about a global European strategy to ensure long term supplies,develop the interconnecting gas network, encompass Central Europe in its projects, and deal with environmental problems."

UPSTREAM AMBITIONS?

GDF's global strategy encompasses further integration upstream and downstream, as well as global expansion.

"Is GDF thinking of going upstream? This is a philosophical question. France's oil companies have gas reserves, but they are not masters of them. I don't believe in a structure approach with Elf and Total. I had asked them to bring us their gas reserves, but so far I have had no answer. I do believe incase by case cooperation, such as the one we have with Total in the Portugal gas project."

GDF leads a group of companies, including Total, that seeks to implement a natural gas infrastructure in Portugal (OGJ, Dec. 9, 1991, p. 74). Gutmann acknowledges that GDF currently has an insignificant amount of gas production, unlike rival British Gas plc.

"But we must adapt to customers' changing demands. they want services, so we are going to selling them heat - not just gas - helping local governments with their heating problem, in sum changing our whole approach. We are also developing cogeneration projects and gas as a motor vehicle fuel."

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