The Times: Gaz de France is off the back burner

EXTRACT: The solution for the NOCs is to get closer to the customers and cut out the middlemen. So they bar the door to Big Oil, denying multinationals, such as Exxon and Shell, the right to drill gas wells, and at the same time they court gas buyers, such as Centrica, GdF and E.ON.

THE ARTICLE

May 9, 2007
Carl Mortished: European Briefing

In the “to do” pile on Nicolas Sarkozy’s desk will be a file marked Suez-Gaz de France, last year’s politico-industrial football.

The merger of the two utilities was suspended by the French courts for procedural reasons until after the presidential elections. Having won the contest, Mr Sarkozy has pressing matters to contend with – legislative elections and mass redundancies at Airbus – but he cannot leave Suez-GdF in the balance for too long because these markets are moving at frightening speed. A big priority for an economic nationalist such as Mr Sarkozy is to ensure that France is at the top table in any carve-up of European energy markets.

These markets are, of course, global rather than merely European, but the relevant commodity in this instance is natural gas and in particular liquefied natural gas (LNG). Gas is on the cusp of becoming a globally traded, rather than locally delivered, commodity and the plot hatched by Suez, the leading partner in the GdF-Suez duet, is to acquire a commanding position, if not a dominant one, in the trade of LNG cargoes in the North Atlantic.

Before the election, Mr Sarkozy showed little enthusiasm for GdF-Suez (although he did not oppose it) and recently he suggested that he was more in favour of an alliance with Sonatrach, the Algerian state energy company and a leading exporter of gas to Southern Europe. There is a lot of politics in this – the incoming President has not endeared himself to Algerians with his refusal to countenance a French apology for the bloody colonisation of Algeria. Mr Sarkozy has talked previously of a trading alliance of Mediterranean nations, but what matters here is that France needs gas and Algeria needs customers.

Europeans are nervous about energy supply, but the suppliers are also getting twitchy about access to markets. National oil and gas companies (NOCs), such as Sonatrach, Qatargas and Gazprom, are developing massive bits of infrastructure to produce ever-larger volumes of gas. They are worried about how the market will develop, how much LNG will be traded in short-term sales of spot cargoes rather than long-term contracts, and how much of that trading profit will find its way back to the NOCs.

The solution for the NOCs is to get closer to the customers and cut out the middlemen. So they bar the door to Big Oil, denying multinationals, such as Exxon and Shell, the right to drill gas wells, and at the same time they court gas buyers, such as Centrica, GdF and E.ON. It is no accident that Centrica has been flattered with the attentions of Norwegian, Russian and Malaysian gas producers, seeking alliances. Centrica has a lot of gas customers.

Together, Suez and GdF would have in their pocket a great number of European gas customers and important access points to the European Union market – several LNG terminals in France and control of the Zeebrugge hub, which is becoming a price-setting gas marketplace.

It will be surprising if Mr Sarkozy sets against this deal, which creates a French energy champion with market power. There is, of course, another French energy champion, but Total’s influence is dimmed in a world where gas and oil production is dominated by nationalised companies controlled by jealous satraps.

Over the coming decade, the battle for energy will be as much about who delivers the consumers as who controls reserves of oil and gas.

The battle won, it’s on to Berlin

The French President-elect’s first foreign trip will be to Berlin, as expected, to reinforce the Paris-Berlin axis. He will give comfort to Angela Merkel’s desire to promote a new EU treaty and Mr Sarkozy will reinforce favourite Franco-German priorities – industrial policy and deeper political union. In so doing he will put paid to any presumption by Britain that it might lure the German Chancellor on to a different path more in tune with British perceptions of Europe.

The interesting question is whether the Franco-German alliance will seek to push the taxation issue. The Commission is anxious to start talks on a common European tax base, opposed by Britain and Ireland. It would decide what is taxed, stripping finance ministers of much of their power. Turkeys rarely vote for Christmas.

http://business.timesonline.co.uk/tol/business/columnists/article1763790.ece

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