What has the free market brought us?

05-06-2015

When I started working at Gasunie, at the department of Industrial sales, the world of gas was simple and straightforward. The choice of supplier was linked to the gas connection, and - in principle - to the volume and gas pressure required. Based on these two parameters, you were either a customer of Gasunie or of a local/regional energy company. The rates were unambiguous; the zone-tariff system simply showed what both you and the competitor paid for gas. However, this also meant that as a customer, you could not negotiate on the gas price of the contract.

Soon afterwards, the energy market was liberalized, under a European Union mandate. The intention of the EU was to break the monopoly of power and allow more competition, also across borders. The tariff systems were changed, which resulted in a distinction between commodity, flexibility and transport costs. By opening up the market, the number of suppliers and variation in pricing increased.

The pipelines 'Interconnector' and later 'BBL' were built, enabling gas to be transported to and from the UK and making the market even more accessible. If, as a result of these developments, your company loses market share, especially if you work in sales, that is never nice. A salesman wants to retain customers on one hand and attract new customers on the other hand. 
Developments quickly follow each other. First, the division of energy companies for trade and transport, the emergence of hub trading and the evolution of rates from oil indexation to gas indexation (the gas trade is similar to the trade in shares). For the average industrial customer, who usually doesn't consider buying energy as its core business, it becomes increasingly difficult to stay abreast with the latest developments, and the demand for consultants who can support industry in this purchase process is increasing.

We also see the impact of the regulator, who, to promote trade, prefers the parties to trade gas on the the virtual marketplace, TTF. For industrial companies, independent trade on TTF is often a problem, as they don't have a 24-hour operational service to ensure a balanced gas uptake. This is why companies are still offered the possibility of delivery at the exit point.

What my observations are of the past 20 years in the gas sector?

Customers can choose which supplier they want to deal with. The market has also become more transparent. There are more possibilities with respect to both pricing and price risk management, preventing nasty surprises. Whether liberalization of the market has resulted in structurally lower prices, is difficult to say. Because of the transparency and the extensive market information, more price fluctuations may be possible, and peaks (both up and down) can be expected.

Finally, I am curious as to how the customer in this free market sees his supplier. Has customer service and service orientation improved over the last 20 years? Are you being treated seriously as a customer? I am interested to hear your opinion.

Klaas Hoekstra
Accountmanager Industry GasTerra
Klaas.hoekstra@gasterra.nl