Interview: Gerhard König, Wingas

March 10, 2010 | 00:00

Interview: Gerhard König, Wingas

‘The market can take care of security of supply’

Europe is in an excellent position to secure all the gas it needs. Just let the market do its work, says Gerhard König, Chairman of the German gas producer Wingas, in an interview with European Energy Review.

‘Security of gas supply? That’s our core business!’ Gerhard König (1966), since 2009 the head of Wingas, a joint-venture between German Wintershall and Russian Gazprom, is on the warpath these days. His target is the European Commission. More specifically, the Regulation to Safeguard Security of Gas Supplies that has been proposed by the Commission and that is now being discussed in the European Parliament and the Council of Ministers.

This regulation, says König, is a bad idea, because it puts too much power in the hands of government. It gives the Commission and the governments of the member states the leading role in dealing with gas crises, such as the Ukranian gas crisis of 2009. Unnecessary, says König, the market can deal perfectly well with shortages. ‘The Ukraine crisis was solved by industry. Not by the European Commission.’

There were, of course, severe shortages in some countries. But these were caused by inadequate infrastructure, says König. ‘This was not a question of market failure. The infrastructure market is a regulated market, and currently, the regulators do not allow investors an adequate rate of return. Hence, there is underinvestment.’

Solidarity

König points to some of the large pipeline projects that are being planned, such as Nord Stream and Nabucco: these are all exempted in important ways from regulation, for example from antitrust rules. ‘If they were not, they would not be built. No major gas interconnections can be built today under the current regulatory framework. The OPAL pipeline that we are going to build (alongside the eastern German border, editor) was exempted for network access rules and transit fees for 22 years by the German regulator. Otherwise, we would not build it.’

König is concerned that the proposed Regulation does not address this problem. ‘It asks for “solidarity”. Yes, we need solidarity, but to show it, we need interconnections. Private industry can provide interconnections, but for this it needs a proper investment framework. If the EU wants to have infrastructure investments, all it has to do is to create the right incentives, most of all allow an adequate rate of return. Regulations are not going to solve the core problems. Only a well-functioning market can do that.’

One demand that has raised König’s ire is that the proposed Regulation apparently requires that companies free up capacity to deal with gas crises. This demand represents a direct interference in the long-term contracts of companies, says König. ‘Our long-term contracts are an essential way in which we as market players contribute towards security of supply. Against this background I need the flexibility to market this gas by my own and not to be forced by any regulator or authority. Otherwise, why should I take all these risks?’

50 coal-fired power plants

The criticism König is expressing towards the approach of the Commission, goes deeper than just the recent proposed Regulation on security of gas supplies. ‘When I joined Wingas in 2002, we were already warning about security of supply, but no one listened.’

Nord Stream will bring 55 billion m3 (bcm) of gas to Europe annually, which is equal to 50 coal-fired power plants

The point König makes is that Wingas was already tackling the issue of “import dependency” in its own way – it had done so by teaming up with Gazprom when the company was set up in 1993. This co-operation proved to be tremendously successful.

‘Yes, we need solidarity, but to show it, we need interconnections’

Wingas was able to import large amounts of Russian gas into the German market. Its latest project is the Nord Stream pipeline, in which Wingas’ mother companies Wintershall and Gazprom hold 20% and 51% respectively. Nord Stream is a €7.4 billion investment that will bring 55 billion m3 (bcm) of gas to Europe annually. That, says König, is equal to 50 coal-fired power plants or 39 nuclear plants or over 280 extra oil tanker shipments through the North and Baltic Sea or over 10,000 km2 of land to build wind turbines. König: ‘A perfect example of security of supply organised privately.’

Nord Stream, the building of which will start next month, came about against a lot of opposition, especially in Eastern European countries, and in the context of deteriorating EU-Russia relations. According to König, currently the European Commission seems to be more aware of the importance of good relations with Russia than in the past. He notes that there was no Ukranian gas crisis this year. ‘This was no coincidence. Gazprom made a huge effort to avoid it. They released Ukraine from its take-or-pay obligations. The political situation has also changed.’

But the Wingas Chairman is still concerned that politicians will use the gas crisis and the issue of import dependency as a pretext for more interference in the market. ‘Brussels used to be in favour of the market, but the pendulum is now swinging to the other side. The Zeitgeist is against the market. But the government is not a better market player than private industry. The more intervention will occur, the more imbalances will be created.’

König hopes the Commission will ‘reflect’ on this. ‘If you make a Regulation to safeguard security of supply, make sure it is based on economic reasoning. That it is flexible. In the current proposal, it is set down in detail what should be done. But you cannot solve problems in this way. You have to allow the market to work – that will solve the problems.’

Misguided

König points out that the perceived fear in the EU of gas shortages, or import dependency, is misguided. ‘True, gas imports will go up in the next 20 years. And Russia will remain our most important source of gas. But Europe is very well placed to profit from the enormous gas reserves that exist in the world. They are located predominantly in Russia, Central Asia, the Middle East and Africa, all areas that are close to Europe and eager to supply the European market with gas.’

In the current market situation, where there is oversupply and prices have collapsed, König sees an extra danger that new, misguided regulations will be put in place. ‘Whatever you do now will not seem to have great consequences. There is plenty of gas available after all. But demand will go up again. We have to anticipate on that by investing now. If you raise incentives and take away capacity restrictions, we will invest. But if you make investment impossible, the results will come back to haunt you in 5 to 10 years.’

The interview with Gerhard König took place on 3 March in Brussels at a conference organised by the Egmont Institute and D Group Germany, focused on “the challenges of a European energy security policy for gas”. At this conference, Jean Arnold Vinois, Head of Unit in charge of security of supply at the Directorate-General for Energy of the European Commission, made it clear that the Commission rejects the gas industry’s criticisms of its security of supply proposal. For a report on the various views expressed at this conference, click here.

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