Having given up the big and profitable Morecambe gas fields to demerged Centrica, BG inherited a miscellany of international assets which, at that time, was difficult to regard as a coherent portfolio. Now BG International is active in more than 20 countries.
But some anticipated and important aspects of change have not materialised over the past four years - at least to the extent promised. Gas market liberalisation in Continental Europe continues to be disappointingly slow. True, the European Gas Directive is now in force and in principle the way is clear for gas-to-gas competition such as we now see vigorously established in Britain.
In practice, however, monopoly instincts and behaviour die hard. Numerous practical impediments to open competition are continuing to frustrate progress. And in some countries we are seeing the flexing of union power to impede change in ways which are reminiscent of Britain in the 1970s.
Small wonder then that the European Commission is urging the British gas industry, and particularly Transco, to become the principal agent of change in the newly-formed network of European Gas Transmission System Operators. Change will come, and in all likelihood quickly, as we are seeing in the European electricity industries.
However, we are not seeing significant changes in the main upstream sources of gas imports to Europe. Here, state-owned companies continue to control supply, production, development and sales, and in future they will deal with more diverse and fragmented European gas industries.
In consequence, one of the challenges we and the other European gas industries will face is how to create the contractual conditions needed to underpin major gas import projects, whether of pipeline gas or LNG. How will the liberalised industries of Europe replace the assurance provided by the earlier long-term take-or-pay contracts with arrangements better suited to a diversity of smaller players operating on the basis of trading and short-term contracts?
What about the political dimension which has been a characteristic of the monopoly regime? Will we see consolidation and the emergence of a pan-European oligopoly to replace the old state monopolies? Europe's competition authorities will no doubt be keeping a close eye on such developments.
Here then are some of the more far-reaching - and in a good many cases, unexpected - changes which have occurred over the course of my four years at BG. As I indicated at the outset, I have no intention of making detailed forecasts. For in today's fast-moving, complex and ever more inter-connected world, that is no more than an exercise in self-delusion.
Nonetheless, I will conclude by offering a few observations on some of the more important aspects of change and challenge which are likely to confront the future leaders of the gas industry, in Britain and overseas.
The globalisation of the gas industry will continue, driven by the economic benefits of gas for power generation; its environmental attributes; and the relative success of gas exploration versus oil. The growth of world gas demand is likely to continue outstripping that for oil and coal.
Gas will have to play a critical part in bridging the period of decades between now and a much more sustainable state of human activity. The British gas industry and its suppliers have leading capabilities and experience to contribute to the continuing development of the international gas industry.
The recent hike of wholesale gas prices in the British market may well presage a structural shift from an oversupplied buyers' market, to a supply-tight sellers' market. Supply security and reliability are likely to reassert themselves in the priorities of gas consumers, and hence of their governments and regulators.
The regulatory preoccupation with driving down prices as the dominant priority may have to change to reflect new concerns about supply security for a British market increasingly dependent on gas imports in a turbulent, politically shock-prone, world. It is far from clear how this would be achieved in the current market structure. We are likely to have to look for novel solutions to this and other challenges that the new market poses.
More generally, as I have already indicated, there will be no end to structural change and innovation released by the forces of liberalisation throughout the utilities sector. Multi-utility developments are only in their earliest infancy.
Systems and networks will become ever more complex, inter-connected and interactive with the empowered consumer. Indeed, the empowered consumer, supported by internet-enabled smart energy management systems, will be the king - the main dynamic in the market. Brands, reputation and customer relationships will matter as never before.
It is also the case that, rather more rapidly than anyone might have imagined, the 'old economy' companies have either embraced, or will rapidly need to embrace, 'new economy' attributes and techniques. This is simply because if they don't, they won't survive. Internet-enabled transformation is inescapable.
Britain's new plural gas industry has, thus far, shown itself well capable of establishing a competitive and efficient supply market. It has yet to prove to itself and the public at large that it is fully capable of responding to the challenges posed by the intrinsic limitations of the liberalised industry structure.
Here, I am thinking particularly of all aspects of safety and the closely-related fields of training and continuing professional development. Nor should we forget advancing technology and the need to keep pace with the highest international standards and the related operational practices. In these vital areas, I believe our industry has the capabilities and resources, but we have yet to show the will to respond collectively and cohesively.
Thus far we have only made rather tentative, albeit encouraging, steps in respect of the issues which must be addressed by the Gas Industry Safety Group, the Gas Industry National Training Organisation and the Gas Industry Emergency Committee.
Helen Liddell's comments at your recent Awards Ceremony praising and encouraging our continued commitment to the Gas Industry Safety Group should be reminder enough that, if we do not address these issues voluntarily, we will be made to address them, and not necessarily in the manner of our choosing.
In reality, much remains to be done before the mantle previously carried by the monopoly British Gas is shared fairly and fully by the liberalised industry with its many participants. Specifically, carbon monoxide poisonings remind us all that there is still unfinished business in the need to ensure the safe use of the essential product we provide.
In this last regard, and in addressing the other aspects of change I have outlined, the need for gas industry skills and professionalism will remain as ever - hence the vital role of the IGE in underpinning the continuous innovative development of the gas industry's human capital. The gas industry's professional engineers have, over the years, shown themselves adept at confronting challenges and building a better gas industry as a result.
In the professional lives of many present here today, we have seen the advent of imports of gas to Canvey Island aboard the Methane Pioneer, the construction of the National Transmission System, and the conversion of the nation to natural gas.
If recent changes have been more market-driven and underpinned by information technology, rather than advances in engineering, then we should not overlook the continuing need for professionalism throughout the industry. The reputation of gas as a safe fuel has been developed over many decades. It behoves us all to ensure that it remains that way.
Talking of the industry's reputation, let me offer a BG perspective. One of the most difficult challenges the Company faces is to maintain the confidence and trust of gas consumers and the public at large through our reputation for operational and commercial integrity of the highest order. Unfortunately, reputation has a mercurial quality, and there can never be grounds for complacency.
We have worked hard at rebuilding the reputation of BG, and more specifically Transco. The task is never finished. For a utility which is inherently dangerous, especially when supply fails, we depend crucially on the high standards of conduct of our employees at all times.
Also, we are caught up in the changing public attitudes to risk and risk management, the latest examples of which are the perceived shortcomings of the medical profession, and the current inquiry into the circumstances of the Paddington rail crash. For BG, as for the other participants in the British gas industry, we will face the continuing challenge of responding to these concerns in a sensitive and sensible manner.
In concluding, I would like to say that it has been a unique experience and a privilege to have had the opportunity to contribute to the leadership of the British gas industry during a period of unprecedented change. It is a period in which our industry has led the rest of the world in opening new horizons.
I also believe we have laid the foundations for continuing success, always provided that we are ready to respond to the challenges which lie ahead. On a personal level, I wish the Institution of Gas Engineers well in its transformation and its continuing contribution to the success of the industry. My sincere thanks to its Presidents, past and present, and to members for their unfailing support and encouragement over the last four years.
Source:BG.
© 2000 Mena Report (www.menareport.com)
