BG's Chapman says politicians hamper European gas liberalization

BG Group PLC Chief Executive Frank Chapman Tuesday criticized politicians intent on safeguarding their countries' gas markets from competition for impeding the European liberalization program. He said the "fear factor" caused European politicians not to press for fast-track deregulation at the Gas Directive II meeting in Stockholm.


Darius Snieckus
OGJ Online

LONDON, May 2 -- BG Group PLC Chief Executive Frank Chapman Tuesday criticized politicians intent on safeguarding their countries' gas markets from competition for impeding the Europe-wide liberalization program.

Chapman, speaking at the UK Gas Industry Awards, said the "fear factor" had caused European politicians not to advance plans for fast-track deregulation at the Gas Directive II meeting in Stockholm in March.

Despite the opportunities presented by a global gas demand expected to 42 tcf/year by 2010, he said, there remained "a strange pessimism that appears to be creeping into the souls of some key policy-makers in the European Commission and the EU" regarding the future gas market.

"We've known for a long time that EU member states face an increasing dependence on imports of gas -- up from 40% now to nearly 70% by 2002, according to the commission's own forecasts," said Chapman. "But it's as if some of our European colleagues have only just spotted this."

He said EC foot-dragging on the latest version of the gas directive -- which would push through a fully operational internal market -- opening the market for domestic customers by 2004 and for all by 2005 -- as well its proposal to introduce taxation that would depress oil and gas demand in favor of "kick-starting renewables," were disappointments to the UK, which had been "removing obstacles to open (gas) markets.

"One of the repercussions from the fear factor is that it gives comfort to those European politicians who are just looking for excuses to stick to the status quo and to cling to the protectionist barriers that still ring-fence their domestic markets," said Chapman. "And there is no need for this."

Proof that "liberalization works," he said, could be found in an independent analysis of gas prices in the UK, Belgium, France, Italy, Holland, and Germany completed in March which found that UK consumers, in categories ranging from domestic to industrial, enjoyed the "cheapest" prices.

Chapman acknowledged that liberalization didn't guarantee that prices "will be low and stay low," but would give EU member countries the best odds of maintaining low gas prices.

He also blamed higher wholesale prices set by Europe's "illiberal" market, where gas and oil prices remained largely linked, for inflating UK gas prices. "(This) has meant, effectively, the backdoor reintroduction of oil-price indexation to gas-price in the UK via the Bacton-Zeebrugge Interconnector (pipeline)," said Chapman.

"And, of course, this issue is not just about price," he added. "It implies that gas and oil are totally interchangeable fuels -- ignoring the unique qualities and environmental benefits of natural gas."

Driving ahead plans for the full liberalization of the European gas market would not only allow the EU to achieve lower gas prices from gas-on-gas competition, said Chapman, but "would also establish a European gas market predicated on the uniqueness of gas as a clean fuel -- not a market which treats gas simply as a straight substitute for oil."

Chapman also urged the EU to look beyond "obvious" gas sources such as Norway to answer security of supply fears stemming from an over-reliance on Russia and Algerian as suppliers. A diversity of supply approach would, he said, "offer energy solutions to nervous policy-makers in Europe afraid that existing supplies might dry up or the tap be turned off," as well as nurture industrial growth in both Europe and those countries, such as Egypt and Kazakhstan, which hold the greatest potential for gas developments.

He emphasized that enlarging the number of gas suppliers to Europe would necessarily "place the onus on (Russia and Algeria) to keep their market shares by providing some good old-fashioned competition amongst suppliers."

Chapman announced BG and UK Institute of Gas Engineers had established a foundation to highlight the increasing role that liquefied natural gas would play in international gas markets. The LNG Foundation would make awards to individuals who have made "outstanding contributions" to the technical or commercial development of LNG.

Contact Darius V. Snieckus at dsnieckus@ogjonline.com

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