Largest German Gas Pipeline System Goes Live in October

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Researched by Industrial Info Resources (Sugar Land, Texas)--German gas transportation firms E.ON Gastransport GmBH, part of E.ON AG (OTC:EONGY) (Essen), and Bayernets GmBH, the network company of Bayerngas GmBH (Munich), plan to merge their natural gas pipeline networks with those of three other firms, to create the largest pipeline system in Germany. This merger will be effective October 1. The combined network will comprise 14,800 kilometers of pipelines and more than 400 pipeline grids. The network will potentially carry more than 50% of the high calorific natural gas (H-gas) transported in Germany.

The two firms plan to merge their H-gas market areas with those of GRTgaz Deutschland GmBH (Berlin, Germany), a subsidiary of GDF Suez SA (EPA:GSZ) (Paris, France); Eni Gas Transport Deutschland SpA (Dusseldorf, Germany), owned by Eni SpA (NYSE:E) (Rome, Italy); and GVS Netz GmBH (Stuttgart, Germany), a joint venture between Energie Baden-Wuerttemberg AG (ETR:EBK) (Karlsruhe, Germany) and Eni. The combined operations will be managed by NetConnect Germany GmbH & Company KG (Ratingen, Germany), a joint venture in which E.ON Gastransport owns a 35% stake and Bayernets owns a 20% stake, while Eni, GRTgaz Deutschland and GVS Netz own stakes of 15% each.

NetConnect Germany was established in 2008 as a joint venture between E.ON Gastransport, which has a 74.9% stake, and Bayernets with a 25.1% stake. The joint venture was set up to offer products at virtual trading points in response to changing market environments and to enhance gas trading by network operators in their market areas. Sale of gas in the regions covering the North Sea to the Alps and from the Oder River to the Rhine River will be executed with a single entry-and-exit contract. NetConnect Germany will also offer services to the low calorific natural gas (L-gas) market area of E.ON Gastransport.

In a related development, Dong Energy Pipelines GmBH (Kiel, Germany), Gasunie Deutschland Transport Services GmBH (Hanover, Germany), Ontras-VNG Gastransport GmBH (Leipzig, Germany), StatoilHydro Deutschland (Emden, Germany), and Wingas Transport GmBH & Company KG (Hessen, Germany) also plan to consolidate market areas to create a new delivery zone known as Gaspool in northern Germany from October 1. Gaspool will consist of 300 pipeline grids. While StatoilHydro Deutschland will be a part of the integrated zone, the company will not participate in the operations of the pipeline system. The gas transportation firms will agree on a virtual trading point and cooperate on balancing agreements, but they will compete separately in the marketing of gas supplies and pipeline capacities.

In July 2005, Bundesnetzagentur, the Federal Network Agency, was entrusted with the responsibility of regulating Germany's electricity and gas markets under the amended Energy Act of July 2005. The objective was to eradicate regional monopolies by vertically integrated companies in the energy industry and boost liberalization through creation of uniform conditions for competition in the wholesale market. This was planned to be achieved through regulated network access, thereby ensuring a non-discriminatory and reasonably priced supply of gas. With each market area comprising interconnected networks of different operators, suppliers will no longer incur transportation costs brought about by transporting gas between markets.

With the Gaspool and NetConnect Germany ventures scheduled to go live on October 1, Germany will be able to reduce the total number of gas market areas from 10 to six, with the remaining divisions accounted for by the different products transported, H-gas and L-gas. This reduction will facilitate greater liquidity in the gas sector and stimulate competition in wholesale markets. Consumers will benefit from this system by means of having a greater selection of energy suppliers from which to choose, resulting in energy prices being lower and more competitive. Germany's fragmented gas sector is estimated to have a market size of 1,000 terawatt-hours per year. The country mainly procures H-gas from Russia and Norway and L-gas from the Netherlands.

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