Investment of 200 million euros finalised

WINGAS knows no bounds and extends pipeline network to supply Europe with natural gas

Berlin. WINGAS GmbH (Kassel) has made full use of the liberalisation of the European natural gas market: the German-Russian joint venture (65 % BASF/Wintershall / 35 % Gazprom) is already supplying a range of major industrial concerns in Europe. WINGAS will now be investing almost 200 million euros in developing its transport capacities. “We are creating assets and continuing our long-term investment policy for the company,” Dr. Rainer Seele, spokesman for the WINGAS board of management, said recently to journalists gathered at the Haus der Bundespressekonferenz in Berlin, to mark the next stage in opening up the market throughout Europe (1st July) . In Germany, too, WINGAS is bucking the industry trend with its continued growth and has increased its gas sales in the first six months of 2004 by over 8 per cent in comparison with the previous year.

“The successful market strategy that WINGAS has employed in Germany has now been expanded, adapted to regional conditions and transferred, again successfully, to the natural gas markets in Belgium, France and Great Britain,” Seele explained. The extension of the STEGAL pipeline, which has already been agreed upon, will enable even more natural gas to be transported to Western Europe via Germany. The WINGAS transport system connects the natural gas markets west of the Federal Republic with the long-distance gas pipelines to the east of Germany, which extend all the way to Siberia, more than 5,000 kilometres away. The investments that have now been approved will increase the transit capacity of WINGAS by approximately 50 %.

Part of the improvements will involve developing the existing compressor stations at Reckrod (Hesse), Rückersdorf (Thuringia) and Olbernhau (Saxony) along the STEGAL pipeline, and a further station will be added in Kirchheim (Thuringia). These measures will allow the natural gas to be compressed more than before, which will lead to a marked increase in transport capacities. Another stage will be the construction of a parallel pipeline over a distance of 90 kilometres to supplement the existing facilities of WINGAS in selected areas. This means that WINGAS, which has supplied almost 80 billion cubic metres of natural gas from Siberia via Germany to Western Europe in the last ten years, will be increasing this volume considerably in future. According to Dr. Rainer Seele, managing director of WINGAS, the marketing successes achieved by WINGAS, especially over the past few months in Western Europe, confirm this perspective.

Number of customers in Belgium has doubled

In Belgium, WINGAS had already achieved a brilliant start in the first six months of 2003. “Within just a few months, we managed to conclude numerous contracts and to secure a medium-term market share of 7 % in the Belgian natural gas market,” reported Seele. Since then, WINGAS has managed to acquire additional customers via its subsidiary WINGAS Belgium (Brussels). The number of customers from the chemicals, construction materials, foodstuffs and textile industries has already doubled. In addition to Campina, Europe’s largest dairy company, and Air Liquide, the world leader in medical and technical gases, WINGAS supplies gas to companies that include BASF plants in Belgium, as well as a new power station operated by RWE in the country. The new customers that have been signed up are industrial enterprises from Wallonia, among them De Poortere Frère, one of the world’s leaders in the field and the largest textile manufacturer in Wallonia. In this part of Belgium, the natural gas market was further liberalised just a few months ago, and consequently, industrial and commercial enterprises with an annual consumption in excess of 1 million cubic metres of natural gas are now free to choose their preferred supplier.

WINGAS will be delivering 500 million cubic metres of natural gas to Belgium in 2004, and has already contracted to supply one billion cubic metres in 2005. The company’s medium-term sales target is to deliver 2 billion cubic metres of natural gas per year. Belgium has a total annual requirement of 17 billion cubic metres of gas for domestic and industrial use.

France is making good use of competition

WINGAS has also signed up some major customers in France, including a paper manufacturer in Northern France and the French company Air Liquide, with a plant near Le Havre. WINGAS supplies 200 million cubic metres of natural gas to this plant in Normandy alone. “We value this success all the more since France is pretty much bringing up the rear when it comes to deregulating markets,” commented Seele. After all, the neighbouring French market, which is considered to be one of the most reluctantly liberalised markets in Europe, is still dominated by former monopolists. The French industrial customers of WINGAS have so far been supplied via Belgium. A conceivable alternative might be for WINGAS to construct its own competing pipeline, as in Germany. Unfortunately in France – just as with other regulated markets – this would mean having to contend with a great deal of red tape and distortion of the market as a result of cross-subsidisation between French regions and market segments.

More natural gas for the British Isles

HydroWingas, a joint venture set up with Norsk Hydro in December 2003, is making good progress in the UK. The company has already acquired licences as a supplier and transporter of natural gas. In August, the joint venture will be moving into new premises in Twickenham. However, the marketing campaign targeting end customers has already begun and a contract has been signed with the first industrial customer in Scotland. From August, HydroWingas will be providing Devro plc, a company located near Glasgow and one of the world’s leading suppliers to the food industry, with natural gas.

Because of the increasing demand for imported natural gas, the company is expecting to achieve attractive sales volumes in the medium term – at least 4 billion cubic metres a year. The booking of capacities on the planned BBL North Sea pipeline from the Netherlands to the UK is to be viewed in this context as well. This pipeline, which is due to be completed by 2007, and will be able to transport up to 16 billion cubic metres of natural gas a year to Great Britain, will help to increase the UK’s security of supply. “Yes, we have booked considerable capacities on the pipeline,” said Seele. “These volumes will serve to further diversify our supplies to the UK and support our strategy of rigorous growth in Europe.” To safeguard supplies, the company has purchased storage capacities in the UK for the first time.

More Russian natural gas for Europe

The growing sales and the rising demand in Western Europe are being secured in good time by increasing procurement. “At Neftegaz, an industrial fair recently held in Moscow, we reached a basic agreement with Gazprom to renew and extend our purchase contracts until 2030,” reported Seele. Gazprom, a shareholder in the Russian-German partnership, has been playing an important part for years now by supplying natural gas from the large deposit in Siberia. “This is a very significant contribution to Europe’s security of supply and the sustainability of the gas operations of WINGAS,” said Seele.

In fact, the expansionary policy has been pursued successfully in Europe as a whole, and in Germany in particular. In the first half of 2004 WINGAS has achieved major successes with its sales operations and has contracted to deliver in excess of two billion cubic metres. Compared to a downward trend of about –2.5 % for the industry as a whole, WINGAS managed during the first half of 2004 to increase its sales of natural gas by more than 8 % in comparison with the same period during the previous year. WINGAS will be continuing its overall expansionary policy; last year alone the German-Russian joint venture achieved an increase in sales of over 20 %. “This year we are again expecting a sales increase that is well into two figures,” commented Seele.

WINGAS has established itself as a partner of public utilities, regional energy suppliers and industry. The various innovative projects undertaken by WINGAS in partnership with its customers show that these are not empty words, but the genuine experience of these business relationships. These include, for instance, the construction of conditioning plants to adjust the quality of the natural gas to the requirements of WINGAS customers. Such a plant is currently being commissioned by the public utilities in Bielefeld.

Energy dialogue with the EU about security of investment

“July 1, 2004 was an important day for the gas industry in the European Union, even if the actual liberalisation is still being delayed in some member states,” commented Seele. “However, free markets in terms of demand are only one side of the coin. It is just as important to offer an adequate supply of natural gas at a competitive price. And the EU will have to put even more effort into pursuing the energy dialogue that has been initiated with the producers,” emphasised Seele.

Less than 5 % of the world’s natural gas deposits are located in Europe. Almost half the gas consumed by the 25 EU countries today comes from sources outside the European Union. The assumption made by the International Energy Agency (IEA) is that the OECD states will have to invest around 16 billion US dollars a year until 2030 in constructing new and expanding existing gas infrastructures. About half of this, approximately 200 billion US dollars, will have been injected into developing the transport, storage and distribution systems by then.

That is why Seele is calling for a political framework that delivers long-term reliability for producers, importers and investors. This is regarded as the only way in which Europe’s increasing demand for gas can continue to be met. European policy would have to guarantee the required planning stability to ensure that this can occur. At a meeting with Loyola de Palacio, Vice President of the European Commission, the spokesman for the WINGAS managing board and Alexander Medvedev, board member of OAO Gazprom and chief executive officer of OOO Gazexport, recently discussed the key points of an investment-friendly energy policy in Europe.

They argued that the EU’s energy policy in the gas sector should be based on the following principles:

1. Security of supply demands investment in production, transport, storage and distribution. The regulations must encourage investment decisions, they must have long-term applicability and they must be dependable. Changes and modifications in regulations should not increase the uncertainty faced by companies making strategic – and consequently long-term – investments.
2. There must be greater harmonisation of the basic conditions in the infrastructure competition throughout Europe. Deregulated pipeline construction is to be facilitated equally in all the member states. The necessary competition will develop on the basis of competition-oriented prices for transport and storage services. Cost-based regulation of the pipelines constructed as a result of competition is at variance with free market principles.
3. The ownership of the pipeline infrastructure must be protected from exaggerated regulatory demands. Instead real investment incentives are needed by making it possible to free new investments completely from regulation. The relevant procedures should be handled quickly and unbureaucratically.
4. The development of lasting partnerships with the producers of natural gas outside the EU is more important than ever. Unilateral steps, such as reducing the gas price at the border or shortening contract periods are detrimental to the balance of interests achieved in the industry and will damage the natural gas market.

These principles are now to be the subject of further meetings involving OAO Gazprom as the world’s largest producer of natural gas, WINGAS and the EU Commission.

WINGAS GmbH is a joint venture of Wintershall (65 %) and the Russian company OAO Gazprom (35 %). The two partners have both been active in the gas supply industry since 1990 and now supply natural gas to public utilities, major industrial enterprises and regional gas distribution companies in Germany and other European countries via their network of pipelines that is now more than 2,000 kilometres in length. So far Wintershall and Gazprom have invested more than 2.7 billion euros in developing the WINGAS gas pipeline system. The network links the major gas reserves in Siberia with the growing markets in Western Europe and also provides WINGAS with access to the developing European spot markets. With its natural gas storage facility at Rehden, which has a working gas volume in excess of four billion cubic metres, WINGAS possesses about one fifth of the total storage capacity available in Germany. The natural gas storage facility at Rehden is the largest natural gas reservoir in Western Europe.

PI-04-08 - 07/09/04

Contact
Michael Sasse
fon +49 561 301-3301
fax +49 561 301-1321
press@wingas.de

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