Global Gas History
:++ State-corporate crime
Sudden Wealth Curse
Russian President Vladimir Putin, center, and the Netherland's Prime Minister Jan Peter Balkenende, left, enter a hall for a signing of documents ceremony in the Moscow Kremlin, Tuesday, Nov. 6, 2007, with Dutch gas company Nederlandse Gasunie NV President Marcel Kramer, right, in the background. Russian and Dutch officials signed an agreement Tuesday to include Dutch gas giant Nederlandse Gasunie NV in the Baltic Sea pipeline designed to bypass several European countries and ship Russian gas directly to Germany.
Grasping the global disorder of statutory seizure:
Dutch Ordeal '63
The Global Gas History
Three years after the discovery of the huge Groningen gas field in 1959, the Minister of Economic Affairs, De Pous, in his famous “Nota De Pous” established the main principles of the Dutch gas policy. Firstly, in order to generate maximum revenues for the State and the holder of the concession, the Nederlandse Aardolie Maatschappij (NAM, a 50/50 joint venture of Shell and Exxon, exclusively to undertake the production activities at Groningen), the minister introduced the "market-value" principle as the basis on which the gas should produced. Thus, the price for gas to be sold to the various types of consumers was linked to the price of alternative fuels most likely to be substituted, viz. to gas oil for small-scale users and to fuel oil for industrial and other large-scale users.
Accordingly, consumers would never have to pay more for gas than for alternative fuels, but the market value principle also ensured that they would not pay less. The application of this principle based on market segmentation enabled the concession holders, Shell and Exxon, and the Dutch State to maximise revenues and to market natural gas at a competitive price. A price that would have been related to the production costs of gas from the Groningen field would not have had these benefits.
The State’s revenues
Gasunie was given the exclusive responsibility to co-ordinate the commercialization of the Dutch natural gas resources on behalf of the State, the concession-holder NAM and DSM; secondly, through an additional 10% government surcharge on the profits of the Maatschap, and thirdly, through the dividends and the “State profit share” paid to the State by, respectively, Gasunie and DSM. From the early 1970s onwards, a State profit share was also applied on the profits of the Maatschap since the oil price had risen and the State judged that the profit share of the private parties would otherwise extend far beyond the original principles of the cooperation agreement.
In 1963, the Dutch government and the two companies agreed upon a structure that effectively united these principles.The Ministry of Economic Affairs formally confined its responsibilities to approving decisions taken by DSM and Gasunie in respect of prices, production, national and international trade volume and the construction of transport and storage facilities. In practice, it was always consulted on strategic issues and could initiate discussions for any changes it thought to be necessary in the national interest.
From the mid-1960s onwards, Dutch gas exports stimulated the construction of a European gas transport network. This laid the foundation for an integrated gas market and established the principles and patterns of European gas trade. Despite some adjustments, the institutional set-up and principles that governed gas production, marketing and pricing and the distribution of the profits have prevailed until present times.
Inland sales and exports increased rapidly and most gas originated from the Groningen field.
The 1973/1974 oil crisis gave rise to the first revision of Dutch gas policy. Seeking security of supply, the inland consumption and exports of gas were discouraged, whereas the exploration and exploitation of new on- and off-shore deposits was stimulated. Post-1974, oil companies were stimulated to find more new gas deposits, by assuring them that Gasunie - having the right of first refusal - would purchase their gas immediately, against acceptable prices and at an adequate rate of depletion. As a result, from the mid-1970s onwards, in addition to the Groningen supplies, increasing volumes of gas were supplied from Dutch on- and off-shore fields - large and small. Later in the Gas Act Gasunie was given the obligations to accept gas from small fields when offered.
Groningen as swing producer
Many of the smaller fields contained gas of much higher or lower calorific value than the gas from Groningen, to which all (domestic) appliances were adjusted. So, measures had to be taken to include these flows. Installations of large industrial users were converted to H-gas and a second transmission system was built to transmit the H-gas. H-gas and L-gas were mixed to produce a gas of Groningen quality and H-gas was mixed with nitrogen to produce Groningen quality.
Opponent of deregulation
Before that already by the end of 1995, however, the Third White Paper on Energy contemplated a fundamental change to the traditional organisation and the operation of the Dutch gas industry. Initially, the aim was to maintain the basic structure of the industry, with a key role for Gasunie and De Maatschap/NAM, to secure scale and organisational advantages and to facilitate the continued co-ordination of gas sales and purchases from the Groningen field, on the one hand, and from the smaller fields, on the other.
The Gas Act
To this end, Gasunie separated its high pressure transport and storage facilities from its trading activities, through the establishment of a ‘Chinese wall’. The local distribution companies were split up into gas suppliers and network operators, providing regulated access.
In reaction Gasunie carried through a 6.5% lowering of its tariffs for services and promised to dismantle its system. Moreover, it voluntarily announced a legal separation of its transport and trade branches by means of “Chinese walls”.
Guidelines Transport and Storage
After a number of consult meetings, in October 2001, the Guidelines Transport and Storage for 2002 appeared (DTe 2001b, c). Essentially, these further developed a hybrid system of TPA , in which transmission and storage companies had to offer basic services, subject to standard conditions and tariffs, while they may enter into negotiations on special services. It also required the development of an entry-exit-point system, to promote trade, while giving signals of scarcity of transportation capacity.
Regarding balancing, basic services are to be offered within a regime of daily balancing with indications on the boundaries of tolerance Gasunie may impose. Regarding the highly debated access to storage facilities, it was compromised that part of the capacity of the storage facilities would be available to third parties in the year 2002. Gasunie announced the establishment of a new transport tariff system. In the meantime,
Complaints and criticism
Essential to this debate, however, was that Gasunie argued that the regulator, DTe, went far beyond its tasks as provided in the Gas Act, in developing the Guidelines. This was the main complaint, in a court case started by Gasunie against DTe. Instead of being a reactive watch-dog, checking the behaviour of the firms, the development of services and their access conditions on a post-hoc basis, DTe took a pro-active role in designing crucial institutional elements of the Dutch natural gas market; including the definition of the scope of transport, storage, balancing and ancillary services, technical and contract conditions and tariff structures. In this respect, it conceived as its main tasks to facilitate gas trade and to impede abuse of dominant market positions. Therewith, of course, DTe took the initiative to develop the new institutional set-up of the Dutch market away from Gasunie.
Loss of marketshare
The consequences of the new Gas Act, influence some core elements of Dutch gas policy, viz., firstly, the small fields policy, the balancing function of the Groningen field, the accommodation of H- and L-gas and the national depletion policy; secondly, the pricing of gas according to the principle of opportunity costs (or the ‘market value’ principle); and, thirdly, the maintenance of State and private revenues (the “aardgasbaten”).
The large underground gas storage facilities with a total capacity of 35.1 Bcm, created by Gasunie/NAM in depleted gas reservoirs in the Netherlands - at Alkmaar (jointly with BP/Amoco), Langelo and Grijpskerk, together with the flexible production regime which is technically possible from the up-graded facilities installed on the Groningen field, are important instruments for achieving the objective of increased Dutch exports of gas supply flexibility.
Subsidiarity is modifying the way in which the EU Gas Directives are being implemented in the several member-states. This is giving rise to large variations in the degree of openness and in the business strategies in the several EU-member states. Dutch policy in this respect has been ambitious, with a progressive schedule for market opening and a vigorous TPA regime. Reciprocity in access to markets, however, has not yet fully materialized and the traditional Dutch export markets (Germany, Belgium, France, Italy and Switzerland) are largely supplied by other major production and marketing companies.
Since the mid-1990s, by and large, a move towards liberalisation has guided developments in the down-stream segments of the national EU gas sectors. Spill-over from competition in other industrial sectors and pressure by large, commercial energy consumers and potential new entrants to the gas and electricity industry, stimulated the EU Commission to develop its Gas Directive, against much resistance. As a pre requirement for ‘selling’ this package to the small consumers, as citizens and voters, the promise of low prices was included.
The regulatory system
It is also obvious that several parties, with diametrically opposed interests, try to influence the set-up of the regulatory system, referring to these different spheres of co-ordination. Lack of awareness of these different institutional layers, and their interactions with the operations of the overall gas system, has induced shifts in political priorities, objectives and instruments, over time, leaving behind a apparently inconsistent legacy of instruments, commitments stalled investments, etc. This phenomenon is clearly reflected in the post-1959 history of gas policy and instruments of the Dutch Ministry of Economic Affairs and other governmental bodies, with regards to prices, tax revenues, environmental aspects, Mining legislation, etc. It now very much complicates the task of DTe to ‘carve out’ its role, as a stabile consistent regulating authority in the newly emerging institutional context of the Dutch sector. Yet, it could be wished that the Dutch regulator would at least take note of the fact that it is trying to regulate only an interconnected segment of a much larger system, with a rather different logic of coordination.
The x factor
Split up of Gasunie
The Energy Council in 2005 (the official advisory board to the Minister, consisting of experts from industry and institutions) advised that the further split of the trading party should be reconsidered, as the council feels that with the split up of Gasunie Trade and Supply the Netherlands will loose its present strong position in the gas buyers market in Europe for the State and the public interest in maintaining the small fields policy in conjunction with the management of the Groningen Field could be compromised. Another argument is that the DTe should not over-regulate the Dutch Market, compared to other countries, as this could reduce its strong position in the European gas industry.
The Gas Tariff Code
The way the liberalisation is implemented, with the strong reductions in the transportation tariffs, makes the Dutch system one of the cheapest in Western Europe. The further lowering could induce a rerouting of gas flows from the German network to the Dutch Network. In periods of high demand, such as the peak winter season, the lower transport tariffs may lead to a high potential domestic demand for gas transport which cannot be fulfilled by the (limited) capacity of the Dutch gas transport network. This may lead to congestion in the network as access in an entry/exit system must be given on non discriminatotory basis and transit can not be identified.This could mean that final consumers in the Netherlands do not get the gas because there crowded-out by transit flows.
Roundabout for gas
These plans are mainly based on the advantageous geographic and geophysical properties of the Netherlands. Geographic it could be the roundabout for the (Western) European Market and geophysical it gives large opportunities for delivering flexibility form either existing storage or new build. The Netherlands could contribute to a major role in the Security of Supply discussion for Europe. Illustrated by the recent supply crisis as a result of the Gazprom Ukraine dispute. The coming decade will be an interesting one with a lot of changes in supply and legislation in the Netherlands and in the EU. The Dutch gas market will gain importance with its interconnections to the UK and future LNG and pipeline projects including connection to the Russian gas supplies (e.g. North European Gas Pipeline, NEGP) and could be one of major importance to Europe and even in an emerging world gas market.
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