Good opportunities in deregulated markets

November 15, 2001, 00:00 CET

When the Norwegian Gas Negotiation Commission (GFU) closes its doors for good at the end of the year, the individual oil companies will have to negotiate directly with buyers both in Norway and abroad. Olav Skalmeraas, head of Norsk Hydro's gas sales business, is not worried by the prospect of competition.

This summer's negotiations with Poland were the last to be undertaken under the auspices of the GFU. Following pressure from the EU, Norway temporarily disbanded the GFU in June this year, but the negotiations with Poland had begun long before and were being conducted with a country which was not a member of the EEA. However, from 1 January 2002 the GFU, which the EU claims hinders free competition in the market, will be consigned to Norwegian oil industry history.

The GFU, which in recent years has consisted of Norsk Hydro and Statoil, has negotiated all agreements regarding the sale of Norwegian gas on behalf of the license-holders since the end of the 1980s. In addition the authorities set up a Supply Committee in 1993 which includes representatives for all the companies which have a stake in the gas fields along the Norwegian continental shelf. The idea was for the Supply Committee to take care of the individual license-holders' interests, while the GFU would concentrate on the negotiations.

For many the GFU has been the guarantor of security and a long-term approach to gas supplies from the Norwegian continental shelf. Gas contracts can stretch over 20 years and include investments in infrastructure worth billions of kroner. Both buyer and seller are best served if contracts are entered into by two powerful parties, it has been claimed - with reference to the fact that over time the willingness of the producers to make investments may be reduced by the fact that the licence-holders in each gas field will be free to negotiate directly with large and small gas customers on the Continent. For who will take the risk of investing billions of kroner to develop a new gas field and build the necessary infrastructure without long-term contracts with well-established distributors?

"We have the skills"
Olav Skalmeraas is not afraid of this development. He sees new opportunities in the deregulated gas markets of Europe and the UK.

"This gives us completely new opportunities to increase the value of our gas portfolio," he says. "With the background and experience which Norsk Hydro's various businesses have in competitive markets, I see no reason why we should not succeed here, too. Not only that, but Hydro Energy has been operating in the deregulated electricity market in the Nordic region, and is involved in gas sales to downstream markets in the UK and the Netherlands."

The Norwegian gas sellers can no longer operate as a group in relation to customers such as Ruhrgas in Germany or the French company, Gaz de France, which they have built up good business relations with over a long period of time.

But according to Skalmeraas, in a deregulated market will new customers also appear on the scene. "Industrial companies and distributors no longer want to be dependent on one single supplier. They want a choice," he says.

Skalmeraas does not believe the fact that the major gas companies also own the means of transport will prevent free competition. Several companies are expected to demerge their transport and trading activities. In the Netherlands Norsk Hydro has already acquired a foothold in the gas market following deregulation there, and Skalmeraas feels positive about meeting the challenge.

"Of course it is a demanding market, but we are not planning to supply gas to Mrs Jones in the high street. We will be selling to large industrial companies, gas-fired power stations and distribution companies. Going into a mass market like the household market would demand enormous resources. And we cannot see that we would have any competitive advantage over other competitors," said Skalmeraas.

"But within the commercial market we do have the skills to succeed. I am looking forward to this. It will be exciting!"