A survey by Deloitte of over 500 delegates at this weeks FLAME 2005 conference delegates reveals the biggest issues facing the gas industry – including the concern that up to one quarter of European gas may in future be diverted to the US. 

The interactive voting session at the Amsterdam conference, which is attended by a broad range of companies, governments, industries and academia, gave delegates the opportunity to express their views on a number of industry topics in the largest survey of its kind.

Doug King, senior partner of Deloitte’s Energy, Infrastructure and Utilities team, commented: “Given the large number and diversity of representatives surveyed, these views are a strong indication of the current priorities within the industry.  The European gas industry will face a number of extremely varied, new and existing challenges over the next decade.”

Key survey findings:

• l Despite strong confidence among delegates that Europe would have at least enough, perhaps even too much, gas by 2009, 70 per cent believed that up to one quarter of LNG destined for Europe in the year 2008 would be diverted to the US as a result of market forces. There is clearly a belief that the Atlantic Basin trade and arbitrage in LNG will play an increasing role in driving up gas prices. Very few delegates are worried by Europe’s increasing dependence on imported gas as this has been the case (particularly in mainland Europe) for many years.
• Access to gas infrastructure remains a major concern to delegates when considering entry into a new European gas market or securing existing or additional gas supplies.  Fifty per cent of all delegates cited lack of access to infrastructure as the top issue when considering entry to a new European market. In addition, 30 per cent of all delegates identified access to pipeline capacity as a reason for the current illiquidity of European traded markets.
• Now that gas supplies into Europe are expected to be secure in one to two years from now, storage and flexibility of gas supplies have risen quickly to the top of corporate agendas with 77 per cent of delegates believing these issues to be more important than they were two years ago.
• When asked where the main investments were likely to be made as a result of gas liberalisation in 2005, beyond the more obvious choices of assets (31 per cent), and systems (30 per cent), 28 per cent of delegates chose “people” as the main area for future investment. This reflects a growing concern within the energy industry as a whole that there may be a shortage of qualified staff, at all levels of within the organisation, to deliver the increases in gas supply predicted to occur in the next decade. It is in this context that Deloitte, the UK Energy Institute and executive search consultants Norman Broadbent, are currently performing the most extensive survey of manpower in the energy industry ever undertaken. The results of this survey will be published later in the year.
• The possible use of nuclear energy as a solution to security of supply and environmental issues within Europe is clearly an issue for the gas industry. Fifty-one per cent of delegates believed that there would be a significant or moderate shift towards nuclear energy as a provider of incremental energy.
• A number of questions were asked about the influence of oil on gas prices as well as the influence of long term contracts on gas supply in the future. Seventy-eight per cent of respondents believed that gas prices would only separate from oil after 2010, when many key European gas supply projects had been completed. At the same time, 70 per cent believed that contracts to supply gas would probably or possibly become shorter dated over the next two years. This apparent inconsistency may well be explained by the fact that there are effectively two gas markets emerging in Europe. On the one hand, all of the major piped gas and LNG projects, which provide the base load of gas into Europe, will continue to be financed by long-term, oil-linked contracts. On the other hand, at the margin, short–term contract and spot markets will emerge alongside increasing physical and traded liquidity.
• Fifty-four per cent of delegates believed that regulation was still one of the key measures necessary to force behavioural changes on European gas players. However only 17 per cent thought this was the only option for changing behaviour. This indicates that there is still a role for regulation, but perhaps with a lighter touch.
• Finally, at a time when the Kyoto Protocol and the EU’s ETS are high on the agenda, 34 per cent of delegates believed that climate change was important, and that the ETS was likely to make a commercial difference to their business. Interestingly, however, 30 per cent felt that ETS was unlikely to exert significant influence. This suggests the message from the EU many not yet be being heard.

A more detailed report of FLAME 2005 survey will be published shortly by Deloitte.

Ends

Notes to Editors:

About Deloitte
In this press release references to Deloitte are references to Deloitte & Touche LLP.

Deloitte & Touche LLP is the UK's fastest growing major professional services firm based in 21 UK locations, with over 10,000 staff nationwide and fee income of £1,246 million in 2003/2004. It is a member firm of Deloitte Touche Tohmatsu, a leading professional services organisation, delivering world class audit, tax, consulting and corporate finance services, with around 120,000 people in over 140 countries. Deloitte Touche Tohmatsu is a Swiss Verein, and each of its national practices is a separate and independent legal entity.

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