Stand-off over hub plans

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Plans for the development of two separate natural gas trading hubs in the Oude-Bunde-Emden region on the German-Dutch border entered a new phase at the end of February when the industry’s North West European Hub Steering Committee decided to suspend itself. Instead, a co-ordinating focus group has been formed in an effort to ensure the compatibility and potential future integration of the two rival schemes, led by Dutch firm Gasunie and German company Ruhrgas respectively.

The eight-company steering committee – comprised of Centrica, Distrigas, Statoil, Duke Energy, Gasunie Transport, BEB, Wingas and Enron (later replaced with Ruhrgas Trading) – was formed in May 2001, to drive moves towards a trading hub.

But by November, two competing blueprints had emerged: the NorthWest Europe Hub Company (NWE-HubCo), a joint venture between German gas firms Ruhrgas and BEB Erdgas & Erdöl and Norway’s Statoil; and Eurohub, owned by Gas Transport Services, the independent transportation arm of Gasunie.

The rivalry led to concerns about conflict of interest within the steering committee. Some members feared that the rift could make hub operators reluctant to share information with the committee. At the latest of its regular meetings, in London on February 28, the committee agreed to suspend itself while the two hubs are developed.

Instead, the four remaining unaffiliated committee members – UK multi-utility Centrica, Belgian gas company Distrigas, Duke Energy of the US and Germany’s Wingas – are proposing, subject to industry approval, to form a co-ordinating focus group, with Centrica as the Chair, to liaise with Gasunie’s Eurohub and NWE-HubCo.

The group’s aim will be to:

  • ensure the compatibility of the two hubs’ business models, products and services;
  • recommend additional services for the industry;
  • harmonise rules and procedures; and
  • standardise trading terms and conditions.
Eurohub and NWE-HubCo will make regular presentations to the focus group, which will keep the industry briefed on their progress. The eight steering committee members will also form an initial drafting team to prepare compatible trading terms and conditions, and will present these to the industry in June 2002.

Kieron Ferguson, general manager of European marketing at Centrica and the company’s representative on the steering committee, says: “The meeting was pragmatic and extremely constructive under the circumstances. This is the most practical solution, given the short-term conditions we find ourselves in.” Centrica is writing to industry participants to ensure that the proposed changes are acceptable.

However, the industry clearly wants a single, liquid, fully integrated hub. Will Eurohub and NWE-HubCo end up merging? “That is our wish and our hope,” says Ferguson. And both Gasunie on the one side, and Ruhrgas, BEB and Statoil on the other, say they too want a single hub scheme.

So why the stand-off? Commercial politics, it seems. One industry insider says: “Gasunie wants more than just a quarter share. They felt trumped by the Ruhrgas-BEB-Statoil proposal.” Gasunie’s aim, he adds, is to develop a robust hub system of its own by year-end, in the hope of gaining a stronger commercial bargaining position in an eventual merger with NWE-HubCo.

There is much at stake in Europe’s gas industry. The European Gas Directive has been slow to take effect, but liberalisation is taking hold and, say analysts, a market revolution is just around the corner. “Trading hubs are a major stepping stone towards full liberalisation,” says Centrica’s Ferguson. “If you have fully liquid wholesale markets, there are new opportunities from new suppliers.” And former monopolies such as Ruhrgas and Gasunie are fighting to position themselves for a competitive world.

Their NWE-HubCo partner, Statoil, is also thinking strategically. “Statoil is a major player in the Emden area and can bring a lot of short-term gas to market,” says the industry insider. “It’s very important for them to see a hub developed, because it opens up a whole array of commercial opportunities for them.”

BEB is also a key player – it owns the Emden to Bunde pipeline, which links in to Oude, giving it valuable flexibility and gas storage capability. Gasunie’s approach appears more cautious than that of the three NWE-HubCo partners, says one industry analyst. Eurohub’s new title transfer market is about to open – but other elements are needed. “Gasunie is only prepared to offer the industry a step at a time,” he says. “They should put a vision out there of what they want to achieve.”

Gasunie says it will be introducing further elements as the year progresses. But Gasunie Transport was split off from the parent company only in January, and the Dutch Ministry of Economic Affairs is considering plans to restructure the Dutch gas industry further. “Until we have this finished, we are in a really unsettled situation,” says a Gasunie spokesman.

Meanwhile, says Centrica’s Ferguson, many in the gas industry are disappointed that the industry’s efforts are being dissipated on developing two hubs.

They should look on the bright side, he says. “Look back to where we were in May last year. We’re only into the first quarter of 2002 and we’re far further ahead,” Ferguson says. “These two hubs will create natural competition and will increase momentum.”
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