Interconnector to cut gas prices, contracts?

The U.K.-Belgium Interconnector gas pipeline, due to start up in October 1998, will lead to lower gas prices in continental Europe and shorter-duration gas contracts.

This is the view of Wood Mackenzie Consultants Ltd., Edinburgh.

Wood Mackenzie contends that beyond 1998, it will no longer be possible to regard U.K. and continental gas markets as separate.

Meanwhile, Centrica plc and Mobil Europe Gas Inc. have announced sales contracts for U.K. gas in Europe, to be delivered through the Interconnector beginning next year.

The £450 million ($675 million) Interconnector will extend from U.K.'s Bacton terminal to Zeebrugge, Belgium, and have capacity to deliver 20 billion cu m/year of gas (OGJ, Nov. 25, 1996, p. 34).

U.K. gas bargain

Wood Mackenzie said U.K. gas is 30% cheaper to customers than continental gas because of U.K. gas market liberalization, and the price difference is expected to shrink.

"As the U.K.-traded gas market continues to develop," said the analyst, "attention is increasingly turning to the future development of gas trading on the continent.

"However, on the basis that continental European gas markets will for the foreseeable future evolve on the basis of negotiated access, the development of trading will be limited to specific locations where sufficient buyers and sellers exist.

"At Zeebrugge (Belgium), such access is limited to the select few that have contractual access to Distrigaz's transmission system and/or hold equity in the Interconnector.

"Ownership of transmission systems guarantees a dominant position within the European gas market at this stage of its liberalization, where non-discriminatory third party access is not assured."

Supply contract

Meanwhile Centrica, formed to handle U.K. gas supply and trading activities of the defunct British Gas, disclosed a contract to supply gas to Thyssengas GmbH, Duisburg, Germany.

Centrica has signed a contract to deliver 3 billion cu m of gas to Thyssengas during a 7-year term.

The link from Zeebrugge to the German border will be via new pipelines being built by Belgium's Distrigaz.

In addition, Mobil said it has become the first non-equity holder to secure capacity in the Interconnector, in order to deliver gas to a Dutch fertilizer plant.

Mobil has agreed to deliver as much as to 2.2 million cu m/day of gas during 15 years to the Norsk Hydro AS fertilizer plant at Sluiskil in southern Holland.

Mobil said the deal also represents the first sale of U.K. gas direct to an end user in continental Europe, as opposed to a gas wholesaler.