WATCHING THE WORLD U.K. GAS INDUSTRY COMPETITION

Two recent events added emphasis to the fundamental changes that are taking place in the newly competitive U.K. gas industry.

British Gas plc, fast adapting to life in a deregulated market, outlined a list of more flexible contract terms that would be available now that the former state owned monopoly no longer buys the entire output of new North Sea gas developments and has opened its nationwide trunk gas transmission system to third party carriers.

Offshore, Total Oil Marine said it would go ahead with development of Caister gas field in the southern gas province without agreement of its minority partner, Conoco (U.K.) Ltd.

In the days when state owned British Gas Corp. was the only customer for offshore supplies, lack of agreement among partners would certainly have vetoed the project. Today, reserve owners can look to a multiplicity of potential buyers and access to sophisticated infrastructure to get the gas to market.

BRITISH GAS FLEXIBILITY

British Gas now appears ready to take advantage of the competitive situation. It wants faster, simpler contract negotiations and is prepared to buy residual reserves, gas from unspecified sources, even on spot or winter peak terms-all of which were anathema to the old British Gas Corp. and some of its private sector suppliers who had learned to live comfortably with the lack of competition in the old regime.

In this dynamic situation, disagreement between operators and their partners over field development and gas sales agreements could become commonplace. The possibility of several different customers for gas has emerged from outline discussions on the disposal of associated gas from a project in the northern North Sea.

CONOCO BALKS

Conoco's refusal to back the Caister group's decision to develop the 300 bcf field with an unmanned platform and a 100 mile pipeline to the coast did not stem from basic opposition to selling the gas to National Power plc for use in a 600 megawatt cogeneration station at Killingholme, South Humberside.

Conoco, one of the most experienced gas field operators in the southern basin and with its own terminal facilities at Theddlethorpe, unsuccessfully proposed that Caister, in Block 44/23a, should form part of a joint development with its own Murdoch prospect in neighboring Block 44/22b.

Murdoch reserves are estimated at 200-300 bcf. By yearend Conoco plans to have results from a further six wells in Murdoch field and a number of other prospects in the area to provide a better indication of total reserves in the southern part of the quadrant.

In southern basin terms, Quadrant 44, which adjoins the Dutch median line about 70 miles from the main producing fields, is underexplored. It also lacks established infrastructure, giving an obvious commercial incentive to Total-which has no other southern basin operations-to provide the first transportation system.

Conoco has until October to decide future strategy in this newly competitive atmosphere. It can continue to participate in the field development and sell its gas to National Power or find an alternative buyer for its 11% share of Caister along with Murdoch gas.

Withdrawal from Caister completely is another option and it could again try to persuade Total and the other Caister partners of the merits of joint development. These days, nothing is impossible.