Gaz de France, France's state owned natural gas company, has embarked on a strategy of pursuing gas projects worldwide while redefining its mission at home.
In a natural gas market that GDF believes is poised to grow threefold the rest of the decade and break out of its regional confinement, only the largest gas companies will be in a position to play a significant global role at the turn of the century.
"We intend to be one of them," GDF Chairman Francis Gutmann said in an interview with Oil & Gas journal (see related story, p. 26).
That statement underpins GDF's new international strategy that's emerging as the company becomes increasingly involved as an investor and an operator in gas projects outside France.
Until recently, GDF's international action was mainly geared to ensure France's gas supplies and to trading abroad the technology and experience it has developed all along the downstream end of the gas chain from processing to transmission to distribution, storage, and utilization.
Proceeds from that technology transfer have helped offset the high cost of GDF's imported gas, about a third of which is liquefied natural gas. That global presence in natural gas technology development now gives GDF the needed "strategic dimension" to become a major player on the world gas scene.
THREEFOLD RATIONALE
GDF's strategy has three priorities:
- Foremost is the need to ensure GDF's long term gas supplies as market tensions and competition grow. This means developing closer relations with all its suppliers, especially Algeria and Russia, which provide about 60% of France's gas needs. It also means boosting cooperation with countries through which the gas transits-Central Europe for Russian gas and Morocco through which the planned Maghreb-Europe gas pipeline will pass.
- The second priority is to maintain and improve the utility's position on Europe's gas scene to be better prepared for opportunities arising from further deregulation of the continent's market. This is the motive behind GDF's involvement as operator in a project to introduce gas into Portugal and its recent involvement in eastern Germany's developing gas network.
- Its third priority, the necessary backup for the other two, is to disseminate its gas technology and know how not only in supplier countries and their neighbors but in countries developing their gas markets or in countries, such as the U.S., where it could establish a foothold and experience a new gas environment.
IMPORT DEPENDENCE
Because France has only small and declining gas production, GDF depends 90% on imports to satisfy a growing market in France that accounts for about 13% of the country's total energy needs.
Gas consumption growth is outpacing national economic growth. But supply contracts signed to date provide for adequate supplies to 20102015. Last year the Russian Federation supplied 31% of the 1.176 tcf imported, with Algeria providing 28% in the form of LNG. GDF is the world's second largest importer of LNG after Japan. Norway and the Netherlands provided the balance of imports.
Under a long term arrangement, the former Soviet Union supplies about 424 bcf/year of gas to France. A year ago, agreements with Algeria's Sonatrach extended to 15 from 10 years three LNG purchase contracts covering 318 bcf/year. GDF and Sonatrach signed a separate contract to provide additional volumes increasing gradually to 35 bcf/year in 10 years.
Also in 1991, Netherlands' Gasunie agreed to increase its sales to GDF by 53 bcf/year from 177 bcf/year while extending its contract to 2009. And Sonatrach signed a contract with Nigeria for purchase of 17.7 bcf/year of LNG from 1997 on. GDF further expects gas from Troll and Sleipner fields in the North Sea to increase Norway's share of French gas imports after 1993.
RUSSIAN CONCERNS
Although various scenarios of natural gas supply development indicate prospects for resources are sufficient to meet growing market needs, Gutmann worries that the pace might be too fast, causing market instability.
At the same time, some new gas field developments, especially in Russia, might lag demand for supplies from certain areas.
GDF's long relationship with the former Soviet Union predates the first gas supply contracts of 1975.
Since 1990, however, normal commercial relations with Soyuz Gas Export-now Gas Export-and technical relations with Gazprom have been extended to include new and deeper forms of cooperation, namely through joint ventures. With the Soviet Union broken into different republics, those relations have been broadened to encompass new partners: gas distribution companies and local authorities in various towns and republics.
It stands to reason, however, that the focus remains on Russia and Gazprom and, to a lesser extent, Ukraine, through which Russian gas moves.
GDF's main concern is to help sustain Russia's gas production and reliable supplies.
Priority goes to actions that directly or indirectly help increase reliability of the gas system. GDF is laying the groundwork for a long term effort at energy conservation in industry through pilot operations in combined heat and power plants, mechanical manufacturing plants, and the steel industry. If successful, those operations will be extended to other areas to tap a huge gas potential that underlies energy conservation in Russia.
A coordinating committee has been set up with Gazprom to deal with security of the gas transmission network, develop underground storage projects, and save energy all along the gas chain.
GDF and Gazprom also are considering a joint venture to develop gas related projects. One involves delivery by GDF of equipment and material in exchange for gas supplies. But such deliveries would remain outside the framework of established contracts because Gutmann is determined the latter should not be interfered with for fear of making regular natural gas supplies "conditional."
With the breakup of central administration in the former Soviet Union, a number of other joint ventures have been formed with partners in Russian cities. GDF is to revamp the Moscow and St. Petersburg gas utilities. GDF also is helping to revamp and expand gas networks of the Ukraine and Kazakhstan.
Because Kazakhstan, with little gas production but huge reserves, will see ambitious oil development projects by multinational oil companies, including Ste. Nationale Elf Aquitaine, GDF has agreed to a Kazakh joint venture, Kazakhfragaz, that is being set up to transport associated gas. That will pave the way for GDF involvement in the republic's entire gas grid.
ALGERIA, OTHERS
GDF's relationship with Algeria, while stormy at times, has lasted several decades.
GDF is pressing closer industrial and service cooperation. That will focus on the LNG supply chain and underpins a contract GDF and its engineering affiliate, Sofregaz, signed with Sonatrach in 1990 to revamp the Skikda gas GL1-K liquefaction unit. A joint engineering venture, Safir, was established in partnership with Sonatrach and Sonalgaz to deal with a broad range of engineering activities. Safir will oversee the revamp of Algeria's oldest gas liquefaction plant, GL4-2, formerly Camel, at Arzew.
In line with its new strategy of international involvement, GDF also is participating in the proposed Maghreb-Europe gas line via Spain. It is a partner in Omegaz, the company formed with Sonatrach, Spain's Enagas, and Morocco's SNPP, to study the project.
Next on GDF's list of priorities is Europe, eastern and western, where countries are either opening up to gas or renovating and extending their gas networks and industries.
Special attention is being given to Czechoslovakia through which Russian gas moves. As in Moscow, GDF has opened two permanent offices in Prague and Bratislava to handle joint projects. A joint venture has been formed with the local gas utility for a renovation project.
In Hungary, GDF is preparing to take part in the privatization of five gas distribution companies. In Poland it is in line to take part in the modernization and development of Wroclaw's gas network.
Growing involvement in eastern Germany has prompted GDF to set up a Berlin subsidiary, Gaz de France Deutschland, to handle interests it is taking in a number of joint ventures. Set up with German partners, Erdgas Mark Brandenburg will distribute gas in western Brandenburg.
More recently, a joint venture was formed with Germany's VEW and British Gas plc to buy Freiberg's Deutsche Brennstoff institute, a research and engineering center that will focus its capabilities on environmental issues, gas technologies, and sewage treatment. This is GDF's first association with competitor British Gas.
Within the European Community, the world scale project to introduce LNG into Portugal strengthens GDF's position in Europe as well as its strategy of making the most of its gas technology and experience.
A group led by GDF has been chosen to develop an entire gas infrastructure in Portugal. It will build and operate an LNG terminal at Setubal, a high pressure pipeline from the terminal to Braga, and an underground storage site. The project has EC financial backing.
In addition, GDF is a partner in Portgas, a company set up to distribute gas in the region of Porto. This venture also boosts GDF's ties with Algeria because of the LNG link. And it is an opportunity for GDF to demonstrate its skill in the latest LNG and gas storage technologies, which the company hopes to market in the Far East and North America.
As a major importer of LNG, GDF is deeply involved in the whole LNG supply chain undergoing rapid global expansion. It has joined with Total, Elf, and Institut Francais du Petrole for a 10 year government sponsored program to study cost cutting all along the LNG chain.
UNDERGROUND STORAGE
Underground storage is one of GDF's strong points the company hopes to capitalize on worldwide.
While banking on a number of projects in Europe designed to improve gas supply security, GDF has signed two joint ventures in this area in the U.S. and Canada.
The stake it has taken in the U.S. company Tejas Power Corp. (TPC) is geared to a very specific part of the gas chain that GDF considers strategic.
As a go-between for gas producers, transmission companies, and end users, TPC will develop gas storage sites at strategic points on the supply chain to provide more market flexibility.
Copyright 1992 Oil & Gas Journal. All Rights Reserved.
