Since the 1960s, the gas price has been fixed according to the oil products rate. The French authorities have regulated gas price to minimize the impact of that linkage. Now that the French market for the supply of gas has been liberalized, there are alternative suppliers free to offer you their gas products at their own prices.
Gas prices in France are governed by the following laws and regulations:
Natural gas is an energy source for which other sources can be substituted. In order to develop its use, European producers and importers agreed in the 1960s to index its price on that of oil, and so ensure that the price of gas would not rise above that of its competitor fuels.
The oil products used in the indexation formula are domestic heating oil and heavy fuel oil. The formula also takes into account the exchange rate between the euro and the US dollar and – since 2008 – the price of Brent crude.
In order to diversify risk, natural gas procurement contracts are made for long periods (10 or 20 years, etc.). The importer accordingly bears the “quantity” risk by undertaking to pay even for quantities in excess of those consumed. In return, the producer bears the “price” risk, the price of gas being indexed on oil products.
Due to this indexation of gas prices on oil products, any change in the price of those products will have an impact on the procurement cost of France’s natural gas imports, though with a few months’ delay. That impact may, however, be lessened if the EUR/USD exchange rate changes, absorbing some of the rise in the price of oil products (which are quoted in USD).
Since the Order of December 2009, these regulated consumer tariffs have been set by the Energy Regulator (CRE) which may issue a binding opinion in response to an application from Engie (former GDF-Suez) for a price review. Previously these tariffs had been set by the Minister for Economic Affairs and the Energy Minister, after consulting the CRE for an advisory opinion.
Only Engie (former GDF-Suez) and the 22 historic local suppliers are authorized to sell natural gas at the regulated tariffs.
There are two kinds of regulated tariff, applied according to the type of consumer. Those known as “public distribution” regulated tariffs apply to domestic consumers and small businesses (some 11m premises at present). The approximately 1500 “industrial” premises, most of them connected directly to the main gas transport pipelines, get the “subscription” regulated tariffs.
The “public distribution” regulated tariff for domestic consumers is calculated from various kinds of cost in fixed proportions, as follows:
The price of gas must change at regular intervals to take changes of procurement costs into account; but since the oil price is so volatile – affected by random weather behaviour and by economic, environmental and geopolitical developments, French governments have wanted to smooth out the changes in the purchase price of natural gas.
This price smoothing is done under what is known as the “6-1-3 principle”. Price changes may be made every three months; when this is done, the procurement costs are calculated on the basis of the mean oil price over the six months preceding the current one. The new tariff then applies for the next three months. For instance, the tariff applied from January to March will have been set during December, calculated from the mean oil price for the period June to November, inclusive.
Since the natural gas market was opened to competition, new suppliers have been allowed to offer natural gas products at prices they set at their own discretion without any intervention by the public authorities. The “historic suppliers” – Engie (former GDF-Suez) and the ELDs – are likewise free to offer unregulated-price products alongside their regulated ones.
These unregulated prices are determined on the basis of the same criteria as regulated tariffs, in that they take the following into account:
The fees charged for using the natural gas transport pipeline network and distribution grids are set by official Order on the CRE’s recommendation. They are levied on all suppliers of natural gas under the same terms and conditions.
Price competition will accordingly rest on the relative success of the various suppliers in controlling their procurement and marketing costs.
Last updated on 17/03/17
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