Gaz de France

Gaz de France

23 rue Philibert-Delorme
75840 Paris, Cedex 17
France
(1) 47 54 20 20
Fax: (1) 47 54 31 79

State-Owned Company
Incorporated: 1946
Employees: 27,649
Sales: FFr41.80 billion (US$8.07 billion)

Gaz de France, one of the largest gas utilities in the world, is chiefly responsible for the import, transmission, storage, distribution, and marketing of natural gas. Gaz de France (GDF) is managed by an 18-member board of directors which includes 6 representatives of the French government, 6 consumer and/or industry representatives, and 6 representatives of the work force. The chairman, chosen from the board members, and the chief executive officer are appointed by the French cabinet.

When it was established the role of GDF was to concentrate the production and distribution of gas in France. Before 1946 gas was mainly manufactured from coal, in more than 500 gas works, located throughout the country, which were owned by companies of various sizes: large companies supplied the areas around major cities, whereas subsidiaries of coal companies, such as Les Houillères Nationales, now Charbonnages de France (CDF), delivered gas to mining areas. For economical, political, and social reasons, the energy industries were nationalized soon after World War II by the Gouvernement provisoire, a tripartite government consisting of Mouvement Républicain Populaire, Socialist, and Communist parties.

Nationalization took place on the recommendation of Général de Gaulle, the former head of government, and Marcel Paul, the Communist Minister of Industry. On April 8, 1946, the Nationalization Act was effected, nationalizing the production, transport, distribution, import, and export of electricity and combustible gas; and establishing two new public corporations—Gaz de France and Electricité de France (EDF). Several gas producers remained exempt from nationalization, particularly those whose main activity was not gas production, transmission, or distribution including the producers of natural gas and gas manufacturing companies with an annual production of less than six million cubic meters. Gas distributors supplying less than this quantity were also exempt from nationalization. These included local authorities and in 1991, 21 municipal utilities remained as independent companies.

Eventually the mixed enterprises, those companies providing both gas and electricity, were absorbed by EDF, including the gas activity which was later to be allocated to GDF. Under the Nationalization Act, these companies were financially autonomous and consequently commercially and technically independent. Initially, to simplify and unify the organization, EDF was in charge of the management of GDF whose first chairman, George Reclus, was under the authority of EDF’s chief executive officer, Roger Gaspard. On January 4, 1949, however, GDF was partially separated from EDF when a law came into force giving it financial autonomy, with a credit of FFr6 billion and the order to separate its management from EDF within 6 months.

On February 23, 1949, Jean Le Guellec, former General Inspector of Industry and Commerce, was elected first chairman of Gaz de France, with George Combet, former chairman of Société de Gas et d’Electricité de Nice, as chief executive officer. Their first task was to modernize and concentrate gas manufacturing facilities and to develop the local transmission networks. The first long-distance pipeline was established in 1953, from the Nancy area to Paris, to open up a new market for the Lorraine coal gas. In southwest France, meanwhile, several small natural gas fields remained unexploited. A new law, the Loi Armengaud, came into force on August 2, 1949, excluding natural gas transmission from GDF’s monopoly. This was in opposition to the Nationalization Act, which excluded only natural gas production from GDF’s monopoly.

In 1951, the Lacq gas field in southwest France, then one of the largest in the world, was discovered by Elf Aquitaine and launched in 1957. The first transmission system, 4,000 kilometers long, was built to supply gas to southwest France, Brittany, and the Paris area. As a result, sales of natural gas increased threefold over the following five years from 1957 to 1962. Cities connected to the mains switched progressively to natural gas and by 1965 approximately half of France was supplied with natural gas. This was known as the natural gas revolution. The period was marked by the birth of the Fifth Republic and the arrival in 1959 of Général de Gaulle as head of state. It was also the period of the Algerian War and the loss of this colony was to be significant for French energy resources. In 1958, a special regime was established for the transmission and sale of natural gas in France. The Société Nationale des Gaz du Sud Ouest (SGNSO), owned by GDF, retained a monopoly within its area and the Compagnie Française du Méthane (CFM), owned 50% by GDF, 40% by TOTAL Compagnie Française des Pétroles and 10% by Elf, was established to carry out all operations relating to transmission and sale outside southwest France. With these subsidiaries GDF had a virtual monopoly of gas transport and distribution in France.

By the end of the 1960s, 70% of gas supplied to customers by gas utilities was natural gas, as opposed to 99.5% in 1991. Supplies from Lacq were insufficient and it was necessary to import gas. The French tradition of strong government intervention and involvement in the energy sector influenced negotiations for contracts. The purchase of gas was a useful diplomatic ploy, as confirmed by the first contract with Algeria, which procured gas from the Hassi R’Mel gas field. Signed in 1965 with the Algerian company Sonatrach, this initiated GDF’s international involvement. The second gas import contract was signed with the Netherlands in 1967, linking GDF with the Dutch company Gasunie until 2005. Gas from the Groningen field was carried by pipeline via Belgium to northern and eastern France, leading to the extension of the transport network in Europe as well as in France, where the network reached a length of 13,000 kilometers in 1970.

Aware of its important role in the national program, and international energy markets, GDF extended its research and development program, particularly in the field of high-pressure pipelines and gas liquefaction, to improve transmission and storage facilities. GDF participated in the construction of the first natural gas liquefaction plant, GL4Z, in Algeria; designed and built the LNG (liquefied natural gas) receiving terminal at Le Havre; and ordered its first LNG carrier, the Jules Verne. Later, the Fos-sur Mer, Provence and Montoir de Bretagne, Brittany, terminals were designed and built, the latter being larger and more efficient. Underground storage facilities had been in operation since 1956 and GDF had pioneered the development of storage engineering. From a strategic and load-matching viewpoint, these needed to be developed to allow GDF to cope with winter’s peak demand. The largest unit, 2,760 million cubic meters, was put into service in 1968 at Chémery in central France and in 1991 was still the world’s largest underground storage facility.

In 1969 Robert Hirsh, a former state representative at Commissariat à 1’Energie Atomique (CEA) and a member of the board of Electricité de France, replaced Jean Le Guellec as chairman of Gaz de France. Hirsch’s nomination was particularly significant for the French energy policy. The period leading to the 1973 oil shock was characterized by cheap oil which boosted France’s industrial development and more than doubled energy consumption. The use of oil greatly increased, demand for gas and electricity grew substantially, and the French nuclear power program was started. The period of the two main oil price rises, 1973 to 1979, boosted natural gas consumption in France and throughout the world.

In response to the first oil price shocks, French government policy was to adopt a far-reaching nuclear power strategy, enabling France to rely more on nuclear power for energy production. This resulted in significant diversification of primary energy suppliers. The idea was to avoid a situation where one supplier accounted for more than 5% of France’s total energy supply and this remained the case in 1991. To follow this policy, GDF looked for alternative suppliers of natural gas, resulting in the purchase of Soviet and Norwegian North Sea gas in addition to the former Algerian and Dutch contracts. With the most important natural gas reserves in the world, Russia became its largest producer. Three contracts were signed between GDF and Soyouzgazexport, one from 1976 to 2000 for 2.5 billion cubic meters per year, one from 1980 to 2000, and the third, from 1984 to 2009, for 8 billion cubic meters per year. The Norwegian contracts were signed with four separate producers—Ekofisk in 1977, Statfjord in 1985, Heimdal in 1986, and Gullfaks in 1987 In 2003 other deliveries are planned to come from Norway—Troll and Sleipner—after contracts agreed with Norway’s Statoil. Two more contracts were signed with Algeria, one in 1973 for 3.5 billion cubic meters per year, and one in 1982 for 5 billion cubic meters. Both were long-term contracts, 25 years and 20 years long respectively, and have been renegotiated.

In 1976 Robert Hirsch left Gaz de France and Jean Blancard became chairman after a long career in the energy sector. In 1979 Blancard was in turn replaced by Pierre Alby, former chief executive manager of GDF. The nomination of such distinguished representatives of the energy industry demonstrated the government’s concern with the gas industry. Furthermore, by 1979 Paris was relying soley upon natural gas. Production of manufactured gas had ceased and GDF was importing huge quantities of natural gas to meet increasing French consumption. GDF had been induced to liaise with other gas companies in managing the transmission of purchased gases and in supplying security clauses. The 1970s, marked by the energy crisis, saw the total transformation of Gaz de France into an active member of the international energy market and network.

Natural gas consumption’s share of primary energy, which was 7.9% in 1973, increased to 12.7% in 1979, while the electricity share increased from 9.2% to a mere 11.7%. The competition between the two sources was strong, and GDF, aware of changing times ahead for the enterprises, whether private or public, developed a new attitude toward its friendly rival Electricité de France (EDF). GDF was divided into a number of operating divisions which dealt only with GDF. At a local distribution level, GDF and EDF shared a joint role. Distribution regions were divided into a number of distribution areas. Each distribution area had a budget for each type of energy, but for the general public EDF and GDF were closely connected with private consumers of both gas and electricity generally invoiced on the same bill. This was still the case in 1991.

To differentiate between gas and electricity as energy sources was a daunting task for GDF. GDF programs and rates were regulated by the Minister of Industry and the Minister of Economy and Finance. Despite this close link with the government, GDF was ostensibly run as a commercial enterprise, financially independent and taxed in the same way as a private firm. In the early 1980s GDF recorded severe losses which it was necessary to restrict.

GDF has had a difficult position in the national economy compared to EDF. France exports electrical energy and EDF has had to face overcapacity of electricity, whereas huge quantities of gas are imported. In 1985 Pierre Alby, then chairman of GDF, summed up the problem in a speech on the competition between natural gas and nuclear power during the Fifteenth World Conference of the International Gas Union when he said that in France, a country lacking major national gas resources, “the gas industry is a factor which cannot be neglected by a policy striving to establish a balance between imports and exports.” He added, however, that the gas industry could not isolate itself from balance of trade concerns. His analysis of the position of gas as opposed to nuclear energy revealed the new policy GDF decided to adopt. After major technical achievements at national and international levels, GDF must, he said, accept the laws of competition on the energy market and, above all, nuclear competition.

Once again GDF was ready to accept a new commercial challenge. GDF could not compete with lower prices as the government controlled these closely. Initially GDF continued to implement its strategy of promoting the export of French gas expertise by becoming involved in several trans-European pipeline companies and obtaining part ownership of two tankers used to transport LNG from Algeria. In this respect, GDF has developed its industrial activity, and this has made it possible to reduce the import bill.

The next stage was to promote a modern image of the gas industry to the general public as well as domestic, commercial, and industrial users, in order to compete with electricity. To this end natural gas was promoted as a plentiful, flexible, powerful, and clean source of energy. The environmental safety of the product, particularly important in the industrial sector, helped GDF to increase its market share significantly. The promotion of clean energy was also welcomed by the increasingly vocal ecology movement, which was strongly against nuclear energy. Fondation du Gaz de France was established to promote protection of the environment.

To tackle the domestic and commercial market was, however, more difficult. GDF was in fierce competition with EDF for the domestic market, the new housing sector being one of the main targets. EDF had an advantage with the public authorities who were concerned about the excess of electric energy and tended to favor electrical installations. GDF therefore had to develop efficient marketing methods as well as new communication skills and the company structure was modified to cope equally with government control and with the competitive energy market. The new logo, a single flame designed in 1987, was a sign of this change.

Since the mid-1980s, the European gas market has become considerably more international in character and there have been significant developments regulating competition, the establishment of a European Economic Community internal market program, and environmental issues. Jacques Fournier, who, before his appointment as GDF chairman in 1986, was secretary general of the former Socialist government, was at the same time chairman of the CEEP, European Center of Public Enterprises, and was thus aware of the importance of an internal European market. During a meeting organized by the Fondation Europe et Société early in 1988, he said that GDF would have to adapt itself to the changing situation in Europe concerning standardization, markets, and the fiscal system, at the same time declaring that public services and the spirit of enterprise were not in opposition. State control, he said, was necessary in order to preserve GDF’s autonomy. Francis Gutmann, former French ambassador in Madrid, appointed GDF chairman in August 1988, continued the battle for the autonomy of his company while the monopoly of imports and distribution began to be contested at national and European levels.

GDF showed a loss of FFr96 million in 1990 on a turnover of FFr41.8 billion—more than twice the loss of 1989. Despite these losses, the company had by 1991 proven an ability to cope with technological changes and marketing adaptations. With its industrial assests, research facilities, and expertise, GDF’s active part in worldwide gas development made the company a major factor in French economic growth. The need to make a profit was recognized.

A contract signed with the government in February 1991 enabled GDF to make a profit. Based on discussions under way since fall 1989, the contract covered objectives and management during the period 1991 to 1993. At the press conference held soon after its signing, Francis Gutmann declared: “At a time when natural gas is recognized as a major source of energy and when GDF continues to increase its strategic weight in France and abroad, the new contract provides the responsibility and the autonomy necessary to accomplish a continually improved public service.” The tariff policy was also covered in the contract allowing GDF, among other things, to follow the fluctuations of supply costs. This enabled GDF to stand up to international competition and protect its distribution monopoly from challenges by the French parliament and the European commission.

In France, as Elf Aquitaine and Total threatened GDF’s gas market shares, a parliamentary amendment was signed which changed the statute of 1946. According to the Financial Times of April 20-21, 1991, the new amendment gave communes, the basic units of French local government, freedom in organizing their own gas distribution. This amendment, known as the Desrosiers amendment, was later revoked. At the same time, the European commission continued efforts to break up national energy policies.

In its history so far, Gaz de France has overcome all opposition. In 1991 SGNSO and Société Nationale Elf Aquitaine Production (SNEA-P), Elf’s French oil and gas subsidiary, continued to transport and sell natural gas from fields in southwest France to public distribution companies, including GDF, and to large industrial customers. The establishment of the European market will allow the company to hold its own.

Principal Subsidiaries

Gaz Marine (99.98%); Société Mulhousienne du Gaz (SMG) (99.97%); Compagnie Industrielle d’Activités Immobilières et Industrielles (COGAC) (99.34%); Société pour le Développement de 1’Industrie du Gaz en France (SDIG) (98.80%); Société Financière de 1’Industrie du Gaz (SFIG) (68.78%); S.A.R.L. Gaz Transport (51.00%); Société Française d’Etudes et de Réalisations d’Equipements Gaziers (SOFREGAZ) (49.99%); Compagnie Française du Méthane (CeFeM) (49.97%); Société Nationale des Gaz du Sud-Ouest (SGNSO) (29.98%); MEGAL GmbH (Germany, 43%); Baumgarten Oberkappel Gasleitung GmbH (BOG) (Austria, 44%).

Further Reading

Mougin, Pierre, Mémoires, Paris, Imprimerie Barneoud, 1966; Plcard, Bertrand, Bungener, Histoire de l EDF, Paris, Dunod, 1985; Environmental Pressures and the Response of the European Gas Industry, Report of the Institution of Gas Engineers of the 10th W.H. Bennett Traveling Fellowship, 1988; EDF-GDF, Mémoire Ecrite de L’Electricité et du Gaz, Paris, 1990; Lyle, C.D., and R.O. Marshall, Gas Regulation in Western Europe, London, Financial Times Business Information, 1990.

—Florence Protat