Deregulation Briefing – Electricity, Gas, Water and Waste Water Sectors, The Chronology of Liberalisation From the NRG Expert Historical Energy Data Series
The USA provided the first prototype for gas liberalisation with a number of federal legislative actions between 1978 and 1992, which transformed the industry from a collection of heavily regulated monopolies into a highly competitive market.
Interstate wellhead prices were first regulated by the Federal Energy Regulatory Commission (FERC) in 1954 but deregulated by the Natural Gas Policy Act in 1978. A series of further acts culminated with FERC ordering complete unbundling of production, storage, transport and sales. From 1984 to 1993 the wellhead price declined by 24% and retail prices by 16%. In this period retail gas customers cumulatively saved $100 billion.
US liberalisation was followed by the UK gas industry liberalisation, when parliament approved the privatisation of the national gas monopoly, British Gas, in 1985. The Gas Act of 1986 created new rules for the private industry and established a regulator, Of gas. Tariffs to users under 68000 cu.m/yr were regulated but larger users could negotiate tariffs with BG.
The Electricity Act of 1989 split up the national electricity utility and authorized the use of gas in power plants. In 1993 BG split its marketing and transport activities and in 1997 formed two separate companies, Centrica to market gas and BG to transport it. The competitive market has gradually been widened to smaller users. The quantity of gas transported has increased by 75% since 1986. Prices have fallen 25% to small customers and 50% to large customers.
The reverse side of this was a reduction in British Gas employment from 91,500 in 1986 to 67,000 in 1993 and 36,000 before the 1997 split.
In both countries it is noticeable that the price drops have been much greater for large users. However, small consumers benefit from the lower manufacturing costs of the goods they buy.
The governments and national gas industries of continental countries responded slowly to market reform proposals. The UK and the US are largely self-sufficient in gas but in continental Europe only the Netherlands and Denmark are. Gas supply in Europe is dominated by four giants; Gazprom of Russia, Sonatrach of Algeria, GFU, the Norwegian gas negotiating committee and Gasunie of the Netherlands. 43% of the European gas supply is imported from the three state-dominated companies of Russia, Algeria and Norway.
Germany is the largest gas market in Europe and the industry is in the private sector. While pipeline companies can compete in principle, in practice Ruhrgas has dominated the industry. Ruhrgas of Germany carries about half of Europe’s tradeable gas through its gas pipe network and wields strong influence. In recent years Wingas, a partnership of BASF and Gazprom, has constructed competing pipelines and provided real competition to Ruhrgas.
Each European country has a strong central gas supply company operating the national transmission network. When the EU Gas Directive was enacted n 1998, the UK and US had a large number of companies supplying gas, strengthened by the privatisation and deregulation in the preceding years, while the continental countries inherited entrenched monopolies.
The same principles of privatisation, unbundling and a degree of price deregulation as developed in the electricity sector apply for gas but the entrenched interests seem to be stronger.