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France is one of the world's largest nuclear power producers, but has limited fossil fuel resources. The 2000 merger of its top two oil companies formed the fourth largest oil publicly-traded company in the world.
The information in this report is the best available as of April 2003 and is subject to change.
Traditionally, the role of the state has been stronger in France than in other Western European countries. France is one of the most economically centralized countries in Europe, with a strong history of state ownership in the aviation, telecommunications, and energy industries. However, the role of the government is now changing. Important economic and political developments in France include privatization and increasingly frequent mergers and acquisitions (M&As) and hostile corporate takeovers, once virtually unheard of in the country.
Drivers of this movement towards decentralization include increased pressures of globalization, compliance to EU privatization directives, and political initiatives from the newly formed center-right government. Previously, the moderate socialist Prime Minister, Lionel Jospin, and the Gaullist President, Jacques Chirac headed the French government under the French system of governmental "cohabitation." The divided government moved slowly toward privatizing France's energy industry, despite EU directives, calling for member states to relinquish control of their energy companies. This gridlock has left France trailing its EU neighbors in opening its natural gas and power markets to competition. It has also sparked hostility, particularly in Spain and Italy, to France's state-owned utility company, Electricité de France (EdF), which acquired shares in some of their utilities.
President Jacques Chirac and newly appointed prime minister, Jean-Pierre Raffarin, have reemphasized their desire to liberalize France's natural gas and electricity markets. In August 2002, they announced plans for the partial privatization of EdF and state-owned Gaz de France (GdF). This came as part of a program to allow the private sector to invest in state-owned companies, as well as to raise money to reduce the government's budget deficit. In December 2002, the French parliament adopted the European Directive on natural gas deregulation into law, an act that the EU required in August 2000.
Exploration and Production
Despite France's limited domestic oil reserves and production, the French oil industry is an important actor in world energy markets. Major oil assets of French oil companies are located in the North Sea, Africa, and Latin America. French imports come primarily from Saudi Arabia and Norway, followed by the United Kingdom, Iraq, Iran, Nigeria, and Russia.
In early 1999, French oil company Total merged with Belgian oil company Petrofina to create TotalFina, the world's sixth-largest oil company and the third-largest oil company in Europe. In 2000, TotalFina merged with Elf Aquitaine to create TotalFinaElf. After the deal was completed, TotalFinaElf became the fourth-largest publicly listed oil company in the world, after ExxonMobil, Royal Dutch/Shell, and BP. The company has proven reserves of about 10.8 billion barrels of oil equivalent (boe) and production of about 2.1 million boe/d. TotalFinaElf aims to increase hydrocarbon production by nearly 40% by 2005. The company owns more than 50% of the refinery capacity in France, and is the seventh-largest refiner in the world.
During the 1990s, Total and Elf Aquitaine reportedly negotiated with Iraq on development rights for the Majnoon and Nahr Umr oil fields. Majnoon is the largest of Iraq's oilfields slated for post-sanctions development, with reserves of 12-30 billion barrels. In July 2001, angered by France's perceived support for the U.S. "smart sanctions" plan, Iraq announced that it would no longer give French companies priority in awarding oil contracts, and would reconsider existing contracts as well.
In 2002, TotalFinaElf joined nine other companies in supporting the construction of the Baku-Tbilisi-Ceyhan oil pipeline project. The 1,100-mile route will carry oil from a terminal near Baku to the port of Ceyhan on the Mediterranean coast. The pipeline will be capable of carrying over one million barrels of oil per day, and should be completed by 2005.
Because oil security has been such a concern for French energy policy-makers, there is a French law allowing the French government to refuse to close a refinery if it believes its supply or price security is at risk. Essentially, this gives the French government veto power over EU legislation regarding refineries. This could become an important issue as the EU's environmental standards are strengthened.
During the last few years, GdF has sought to increase its holdings, particularly in the North Sea. In 2001, GdF acquired interests in Norway's Snøhvit (12%) and Njord (20%) fields. Snøhvit natural gas reserves are estimated at 7.3 Tcf. In the same year, GdF acquired from Texaco about 21% equity interest in twelve exploration licenses in the UK North Sea. GdF has also signed an agreement with Sonatrach to explore the Ahnet Basin in Algeria, as well as with two Egyptian utilities, EGPC and EGAS, to increase these companies' capacity to supply natural gas to Europe. Last April GdF paid a reported 213 million euros for CalEnergy Gas (UK), which included four gas-producing fields in the southern region of the U.K. North sea - Johnston, Schooner, Windermere and Anglia - as well as three exploration permits and four fields under study for gas development. Most recently, GdF acquired Preussag Energie of Germany. This purchase increased GdF's natural gas reserves to 2.8 Tcf. TotalFinaElf has also expanded its natural gas portfolio. In November 2002, it finalized an agreement to buy 35 Bcf per year from Sonatrach. TotalFinaElf is also involved in developing the South Pars natural gas field in Iran.
Norway is France's top natural gas import source, followed by Russia and Algeria. Natural gas imports from Russia have been declining in recent years, while imports from Algeria have been rising. Imports will increase from Algeria when the Medgaz natural gas pipeline between Algeria and Algeria, Spain is completed. The pipeline will have a capacity 564.8 Bcf per year. TotalFinaElf and GdF both have 12% shares in the pipeline and are expected to take their gas into France. GdF also imports liquefied natural gas (LNG) to its two terminals. In addition to long-term contracts, GdF buys natural gas on the spot market or with short-term contracts from the UK's North Sea.
GdF is establishing France as a hub for Western European natural gas.
In October 1998, France for the first time became linked via pipeline
to a foreign production field. The NorFra pipeline linked Norway's Troll
gas field in the North Sea to the French natural gas grid. The pipeline
is 521 miles long, and is the longest undersea natural gas pipeline in
the world. By 2005, the Norwegian pipeline is expected to supply one-third
of France's total natural gas consumption. GdF is near completing the
construction of the Les Marches du Nord-Est pipeline. It has already
completed the first 124-mile part, which went operational in October
2001. The second 186-mile part was expected to be operational in late
2002. GdF signed a 25-year contract with Italy's Snam for delivery of
212 Bcf of Norwegian natural gas through the pipeline. GdF plans to spend
$2.5 billion 2001-2003 on developing its pipeline network and installations
Liquefied Natural Gas
In its recent report on France's natural gas market, the French Electricity Regulation Commission (Commission de Régulation de l'Énergie) was critical of GdF's two LNG terminals, stating that the company should allow access at these terminals for other market entrants. CRE insists that GdF must reserve part of its new terminal in Fos-sur-Mer for new market entrants.
Increasing France's importance as a transit center, GdF receives Nigerian LNG at its Montoir-de-Bretagne terminal that is swapped out to Italy's Enel. The terminal receives 141 Bcf annually, 124 Bcf under the Italian contract and 18 Bcf under a contract signed by GdF. In October 2002, GdF announced that it has agreed to purchase the entire output of "Train 1" of the Egyptian LNG project. The project is located at Idku, about 31 miles east of Alexandria.
Natural Gas Market Privatization
The French Electricity Regulation Commission (CRE) explained in its recent report that the market limits competition because it is inundated with long-term contracts with foreign groups. This allows GdF to dominate supply. CRE plans to ensure competitive conditions, which will include introducing more flexibility into contractual terms, particularly when the commission takes complete regulatory control of the natural gas market in 2004.
Movement towards changing the status of GdF from a state-owned enterprise to a joint stock company has been slow. France has been one of the slower countries in the EU to pave the way for competition. Although France adopted draft legislation in May 2000, the full national parliament did not pass a law to open the market until recently. The newly formed government has indicated that they plan to begin this process. Prime Minister Raffarin pledged in August 2002 partly to privatize GdF by early 2004. In 2002, the French government already allowed the privatization of the country's natural gas transport network, which GdF and TotalFinaElf purchased.
The French government has supported the coal industry since the 1994 National Coal Pact between Charbonnages de France (CdF), the state coal company, and French coal miners unions. According to the agreement, the industry would receive state support as it was gradually phased out all together. All French coal mines are slated to be shut down by 2005. In May 2001, the EC authorized France to pay 991 million euros in state aid to the coal industry.
There are currently only two companies of any size in France that may be able to compete with EdF on a limited basis. The first is CNR, Compagnie Nationale du Rhône. France's second-largest electricity group, which produces about 3% of France's electricity. In August 2001, CNR and Electrabel of Belgium created a company called Energie du Rhône, which markets electricity produced by both of these companies. The second producer is SNET, Société Nationale d'Electricité et de Thermique, a subsidiary of French coal utility Charbonnages de France (CdF). SNET's shareholders include CdF (51%), EdF (18.7%), and Spain's Endesa (30%). Endesa has recently announced interest in increasing its share in SNET.
Electricity Market Privatization
Another step toward liberalization was the French government's creation of the Electricity Transmission Network (Reseau de Transport d'Electricité, RTE). RTE, which became official on July 1, 2000, operates France's high-tension transmission network and is independent of EdF. RTE's mission is to assure all clients fair access to the network. It also oversees natural gas deregulation.
In late November 2001, the Powernext electricity trading market was
launched in France. Powernext auctions standard hourly contracts for
physical delivery of electricity to business customers under responsibility
of the RTE and guaranteed by Clearnet, a subsidiary of the Euronext stock
exchange. Powernext aims to trade 10% of the French market by 2003-2004,
and also to act as a price reference for the electricity market. Powernext
plans to launch French electricity futures trading, which will include
hedging products for all power-related risk (gas, electricity futures
contracts, CO2, weather derivatives).
In recent years, EdF has acquired a number of large foreign companies, such as London Electricity and German utility EnBW. EdF acquired UK gas and electricity utility Seeboard in June 2002, and is attempting to take over AEP Energy Services in Norway. EdF's acquisitions, however, have not been without criticism, particularly from other EU member states and companies. Many claim that EdF has made aggressive acquisitions in Europe's deregulated electricity market while France has been slow to open its doors to competition in the utility sector, which has protected EdF's market share in France. Another charge is that EdF's status as a state-owned monopoly has made it easier for it to purchase and outbid competitors abroad. Of particular controversy is the company's status as an Etablissment Publique et Industrielle (EPIC) which grants unlimited state guarantees against insolvency and bankruptcy. The EU Competition Commission recently announced in March that it will investigate these grants.
Spain and Italy have also attempted to block the state-owned EdF from entering their privatized electricity markets. Both countries adopted regulations, which limited EdF's voting rights in the companies in which it acquired shares. Spain, however, compromised in October 2002 by allowing the takeover of part of Hidrocantabrico in return for France increasing the interconnection between the two countries from 1,000 MW to 4,000 MW by 2006.
In the case of Italy, EdF and Fiat took control of Edison in 2001. Edison is 76% controlled by Italenergia, an energy consortium in which EdF has an 18% stake. In response, the Italian government passed a decree to reduce EdF's voting rights in Italenergia to 2% in the hope of blocking the French state-owned company from having partial control of the company.
EdF and the Italian government have been trying to reach a compromise so that the voting restrictions can be lifted. Italy would like to see the Italian electricity group Enel be allowed to buy 20-30% stakes in four French nuclear power plants. A final agreement is still pending.
The French government plan to part-privatize EdF by 2004 has faced some
difficulties recently. EdF and GdF renegotiated retirement plans with
four labor unions. However, the Confederation Generale du Travail (CGT)
rejected the plan. Under current law, the companies bear the direct cost
of retirement, but are backed by state guarantees. The new plan would
take the charges off the companies' books in order make them attractive
to private investment. It will remain difficult for the French government
to begin the privatization process until this matter is settled.
France is now seen to be retreating slowly from its staunchly pro-nuclear position. Previously, the government planned to have nuclear power reach 100% of electricity generation. Environmental objections have increased in recent years, however. Germany's decision to phase out nuclear power started a public debate within France about the future of its own industry, and public opinion polls showed that a growing percentage of the public favors an end to nuclear power.
France must now decide whether to replace obsolete nuclear plants with more modern nuclear plants, or to begin phasing out nuclear power. A number of reactors will need to be replaced around 2015-2020. The new center-right government has indicated that it is preparing to authorize EdF to begin planning a new nuclear unit, based on the Franco-German EPR (European Pressurized Reactor) design. However, it will wait on making a final decision until the conclusion of the national energy policy debate, which began in January 2003.
In September 2001, the French government restructured its nuclear sector into a single government holding company, Areva. The Areva Group is a combination of Cogema, Framatome, CEA Industrie, and the Commissariat à l'Energie Atomique (CEA), the French Atomic Energy Agency, which is the major shareholder of the Areva Group with nearly 80%. The group presides over the country's major nuclear enterprises, including mining, fuels, treatment, recycling, decontamination and engineering. The French government plans in the long term to offer Areva shares to outside investors, although the CEA will retain control.
France is one the few countries in the world with a nuclear reprocessing plant. Cogema's La Hague facility received authorization from the French nuclear energy regulator to start operations of two new facilities, hull and end-pieces compacting and plutonium purification and conditioning, in January 2002.
In general, however, most energy-related environmental trends in France appear to be headed for greater efficiency and less environmental impact. The country's rate of energy consumption is holding steady, and France's energy and carbon intensity are on the decline. In addition, France has announced an extensive 10-year plan to curb its carbon emissions in order to meet its commitments under the Kyoto Protocol--one of the first countries to do so.
As part of this plan, France has reiterated its need to develop renewable energy sources to maintain its energy self-sufficiency. Although nuclear energy has helped to provide France with the energy independence the country desires, objections to nuclear energy are increasing. In the 21st century energy efficiency measures in all sectors of the economy likely will be needed in order to make further environmental improvement a realistic proposition.
Sources for this report include: CIA World Factbook; Dow Jones News Wire service; Economist; Economist Intelligence Unit Views Wire; Electricity Utility Week; Europe Information Service; Financial Times; French Ministry of the Economy,Finance and Industry; Global Insight; International Energy Agency; International Petroleum Finance; La Commission de Régulation de l'Electricité; Nucleonics; Oil and Gas Journal; Petroleum Economist; Petroleum Intelligence Weekly; Réseau de Transport d'Electricité; Reuters; U.S. Department of Labor; U.S. Energy Information Administration; Wall Street Journal; World Gas Intelligence.
* The total energy consumption statistic includes petroleum, dry natural
gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste
electric power. The renewable energy consumption statistic is based on
International Energy Agency (IEA) data and includes hydropower, solar,
wind, tide, geothermal, solid biomass and animal products, biomass gas
and liquids, industrial and municipal wastes. Sectoral shares of energy
consumption and carbon emissions are also based on IEA data.
For more information from EIA on France, please see:
EIA - Country Information on France
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French Embassy in the United
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