When industry leaders, policy-makers, academics and other commentators gather this month in Brussels for the 28th European Autumn Gas Conference (EAGC) they will have plenty to talk about. Recent years have seen the industry facing unprecedented challenges to which it has responded with concerted and urgent lobbying.
The Brussels conference will be an invaluable opportunity to gauge the current mood of the industry – at a time of particular significance, given that the European Commission is currently formulating proposals for an energy and climate policy framework to 2030. It expects to issue its proposals before the end of this year, so that they can form the basis for European Council deliberations next March.
“Shaping strategies for survival”: It is instructive to look back at the messages that emerged from last year’s EAGC in Vienna, as reported in a “Viewpoint” report, entitled “European gas: shaping strategies for survival” published by consultancy Gas Strategies after the event (of which I was one of the authors):
“The cloud of gloom hanging over Europe’s natural gas industry was unmistakable at this year’s Autumn European Gas Conference in Vienna. Underlying the sense of foreboding was the realisation that while the growing uncertainties of recent years have lessened, the new emergent realities are mostly working not in favour of the industry but against it. The demand outlook is dire. Gas prices are expected to remain high. Regulatory pressures grow ever greater. Contractual tensions may be easing, but there is still a long way to go to resolve gas price-formation issues in Europe.”
The report went on to pose five fundamental questions: “Where is the industry today? How did it get here? Where is the industry currently headed? What future would the industry like to see for itself? And what strategies should it be adopting to put itself on a better trajectory?”
Where is the industry today? The answer to the first question, based on the results of electronic polling of the delegates (a long-running tradition at the EAGC), was that: “ . . . the industry sees the greatest of its various challenges to be a structural loss in demand for its product. Heavily subsidised renewable energy sources, imports of cheap coal displaced by shale gas in North America, implementation of energy efficiency measures, the dismal failure of carbon pricing policy, and the continuing economic woes of the Eurozone are all taking their toll.”
What strategies should the industry be adopting? The answer to the last question came in several parts:
* “ . . . before considering a strategy for a better trajectory, the industry and individual companies must take a view on the fundamentals . . . the European gas industry was slow to recognise the threat posed by renewable energy, cheap coal and low carbon dioxide prices, and has suffered as a consequence. To accept too readily current market conditions as the “new reality” could be equally dangerous.”
* The report then went on to consider possible industry-wide initiatives: “The natural gas industry has woken up to the need for much greater effort to promote the benefits of natural gas to policy-makers and the public. But to date advocacy efforts have for the most part lacked the visibility that would make them effective.
“Interestingly, one company bucking this trend is Norway’s Statoil, which has embarked on an expensive Europe-wide advertising campaign promoting the role that Norwegian gas plays in providing power for Europe . . . The kind of initiatives that Statoil is undertaking on its own would be much more effective if Europe’s various gas businesses – suppliers and buyers – co-operated more vigorously to promote the overall interests of the industry.
“Also needed is greater emphasis on improving engagement with regulators – both the energy regulators currently striving to create the framework for a functioning single market in Europe and the financial regulators whose various initiatives could have an adverse impact on liquidity.”
* Finally the report considered possible individual company initiatives: “ . . . across Europe the leaders of Europe’s energy companies are having to make choices on how they respond to the new market environment to secure their businesses and put them on to a firm footing for future growth . . .
“The certainty of demand growth, which for so long underpinned investment in gas infrastructure and generation, has gone. For many of Europe’s major utilities this new reality has brought into sharp relief the changing role they play in the market; where once they combined the roles of energy company and national champions secure in their markets, now they must operate in a pan-European marketplace, where competition is increasing and political support less certain.
“Some companies, are responding by reducing their exposure to the gas market, focusing investments in renewable energy; others . . . are seeking to limit their exposure to Europe and to grow international energy businesses. However, whilst these strategic shifts may bear fruit in the medium to long term, companies must find a way of dealing with their current reality; this means identifying, understanding and managing the risks that they are facing and developing new methods and tools to evaluate the market environment.”
A year on from Vienna: Over the past twelve months there is no doubt that Europe’s largest energy businesses, which today for the most part subsume the natural gas business, have grasped the realities facing them. You have only to listen to the reply from Gerard Mestrallet, CEO of GDF Suez, to a question I asked him at last month’s World Energy Congress.
Mestrallet has been leading a group of CEOs from Europe’s largest energy companies in lobbying for urgent reform of policy. From the floor, I asked him what he and his fellow CEOs were demanding, in what timeframe, and how confident he was of a positive outcome. His impassioned reply lasted nine minutes.
In Brussels it will be fascinating to see how the mood of the industry has evolved. Once again Gas Strategies will be polling delegates and producing a Viewpoint report analysing and commenting on the results. Stay tuned . . .
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