GIS in the OIL & GAS Industry - A Eruopean Perspecitive

Edgar B. Sweet III, P.E.
Vice President, International Business Development
Intergraph Utilities & Communications
241 Disk Drive
Madison, Alabama 35758
Telephone: 508-272-0023
Fax: 256-730-8046
Email: ebsweet@ingr.com">ebsweet@ingr.com

Introduction
The process of liberalization and de-regulation within the fifteen European Union member states has led to widespread industry restructuring, creating energy and utility markets that are more complex, and certainly more competitive, than ever before. This paper and associated presentation will address these issues. They will address the political and economic changes ongoing in Europe, the European energy and utility markets, the European gas market, the challenges facing European natural gas transmission companies today, their impact on organization and operation, and expectations for geospatial, asset management and related IS/IT initiatives. Several case studies will be presented on the use of GIS and related geospatial technology to meet key process/application improvements in the areas of cathodic protection and corrosion monitoring; contractor notifications and one-call; emergency response; pipeline integrity management; pipeline maintenance; planning, engineering and design; right-of-way and property management; and sales and marketing.

The European Union
Any discussion on Europe first requires an understanding of the significant political and economic transitions that have, and that continue, to take place given the establishment and growing influence of the European Union. Formerly known as the European Community (EC) or European Economic Community (EEC), the European Union (EU) is a union of states within Europe, a supranational organization established on November 1, 1993 when the Maastricht Treaty – also known as the Treaty on the European Union – was ratified by the members of the original European Community. Currently, the EU has fifteen (15) members. There are several pending memberships from a number of central and eastern European countries (accession countries), which could see membership, rise to thirty countries over the next two to five years.

The EU is dedicated to increasing economic integration and strengthening cooperation among its member states. The EU (see Table 1.0 for comparisons with North America) has created a single market without internal barriers to trade, has a market potential of more than 380 million consumers (more than 500 million once expansion moves forward), has a combined GDP of more than $7.5 trillion, and represents the largest trading group in the world with more than 19% of world exports (by comparison, the USA has 16%).



The EU goes well beyond the “trade agreements” such as the North American Free Trade Agreement (NAFTA) across Canada, the United States, and Mexico. Under the Maastricht Treaty, European citizenship was granted to citizens of each member state. Customs and immigration agreements were enhanced to allow European citizens greater freedom to live, work, or study in any of the member states, and border controls were relaxed. The evolution of the EU has been multi-faceted with the following goals and objectives:

1. Extending the European Common Market and European Community and looking at how the countries and “common” market could benefit by functioning as a borderless group of nation states.
2. Easing trade between countries by allowing goods and services to move across borders without custom duties or any quotas.
3. Creating legislation and governing through a European Commission and European Parliament, the latter a body of the EU whose members are directly elected by the citizens of member states.
4. Establishing a common European currency. The Euro dollar became the standard form of currency in most member states (the UK and Denmark being an exception) effective January 1, 2002.
5. Dismantling of many government-owned enterprises and closed country markets through liberalization and deregulation. This has completely reshaped certain industries, especially Europe’s energy and utilities industry – addressed further below.
6. Taking a more proactive role on global issues such as the environment, defense issues, and foreign aide.

DE-Regulation & Liberalization
The energy and utility industries within Europe are changing and have become global markets. The EU initiated and controlled processes of liberalization and deregulation have led to widespread restructuring and the creation of an energy and utility market that is more complex and competitive than ever before.

The opening of Europe’s national borders, the EU’s focus on introducing and fostering competition within traditionally non-competitive situations (most large energy and utilities were nationalized prior), and the subsequent pursuit for greater economies of scale have created a industries with cross-border and cross-continent ownership and operations. As expected, Europe has experienced aggressive merger and acquisition activity, too fast and too aggressive for many European energy and utility experts.

The EU has succeeded in opening the energy and utility industries across Europe and has introduced competition into each nationalized market. The EU’s Electricity and Gas Directives (96/92/EC and 98/30/EC respectively required that between 2003 and 2008, that all national electric and gas markets be opened up to 100% competition. Today, most markets are 100% open to competition.

The directives legislated addressed dates for minimum and 100% market openings; construction of new generation capacity, open access to electric and gas transportation systems; an unbundling of the energy supply chain in similar fashion to what has taken place in Austral-asia and North America; regulatory and dispute settlement mechanisms; public service obligations; and power exchanges.

The goals of the directives are for better customer service and market price reductions for industrial consumers and households, to make adjustments for the different price levels across EU member states, and to reduce the amounts of reserve capacity in any one country or region by being able to transport cross-border.

Has this result been achieved? Well, to some extent yes. But, at what expense? What is known, however, is that whole new challenges have surfaced. Can companies efficiently and effectively operate cross-border in this environment? How does the industry and EU’s regulators ensure the availability of adequate supply? Can the industry ensure the safety of supply in light of reducing reserves and needing to transport energy across borders? What investments are essential to transform the infrastructure and the way these new international companies operate?

The natural gas market in Europe
Natural gas is the fastest growing fuel source within the European Union member states, and this despite the EU’s limited natural gas resources:

• Natural gas is currently meeting more than 23% of Europe’s primary energy needs;
  • In 2000, gas flowed through more than 80 million meters, meeting the energy needs of more than 200 million individual customers.
• Through 2020, natural gas consumption is projected to grow at an average annual rate of three (3.0%) percent based on the IEO2002 reference case forecast.
• Nearly 60% of all gas consumed are traded across at least one or more international borders within the EU countries and accession candidates;
  • The majority of the gas supply comes from outside the EU. Although the EU accounts for less than five (5%) percent of the world’s natural gas reserves, its consumption is nearly 20% of the worlds total. There is little concern that the EU will be able to meet its future growth. 70% of all known world gas reserves are within 5,000 kms of Europe.
• Over 200,000 km of transmission pipeline extend across Europe (the 15 EU member states and accession candidates) with thousands of km of pipeline interconnectors and extension being built or planned.

By far, the largest consumers within the EU are the United Kingdom, Germany, Italy, the Netherlands, and France. Consumption in these countries is expected to grow steadily over the forecast period. Some of the most rapid growth rates in natural gas consumption in the EU are occurring in countries where natural gas markets are just beginning to grow. These countries include Portugal, Greece, Ireland, and Spain.

Portugal and Greece are two of the smallest economies represented in the EU and are considered by the EU to be emerging gas markets, a status that gives them flexibility in meeting the deadlines of the Natural Gas Directive for opening their gas markets. Natural gas markets in Ireland and Spain have been developing for a longer period, and recent consumption increases, while not as impressive, are nonetheless significant.



Industry Influenec & Direction
The EU has played the most significant role in influencing the development and transition of Europe’s natural gas markets. It has passed legislation over the last several years to liberalize both the electricity and natural gas markets within its member countries. The EU Natural Gas Directive, passed in 1998, opened up the gas markets within member nations and has led to much of the liberalization and unbundling currently being experienced. Specific objectives of the directive were to:

• Ensure the free movement of natural gas and improve security of supply and industrial competitiveness
• Establish common rules for the EU’s internal natural gas market regarding the storage, transmission, supply, and distribution of natural gas
• Address market access, criteria and procedures for systems operations, and the granting of licenses for natural gas supply, transmission, storage, and distribution
• Set deadlines for members (with the exception of emerging markets in Portugal and Greece) to have arrangements in place for third-party access to gas infrastructure;

Informaion & Technology
Regulation, technology and capital markets are continuing to fuel the functional disaggregation of energy markets. This disaggregation is having an effect on companies’ operational processes, business strategies and market positions.

Liberalization is bringing big changes in internal shape and culture as well. The transformation within the gas market (and of utilities in general) throughout Europe is presenting companies with considerable skills, infrastructure, and capacity challenges. The demands of a more dynamic market have created a substantial shift in areas such as regulatory management strategy, enterprise risk management, energy trading, customer relationship management (CRM), information technology and e-business, and data management. There is the need to comply with increasing regulation from the European Union regarding tariffs, capacity and congestion, interoperability, balancing and storage, security (safety) of supply, and improved management and protection of the environment.

Further, it has forced companies to become operationally efficient and capable of adapting to an everchanging business dynamic. Challenges include defining new business strategies broadening product and service offerings, improving customer service, streamlining operations, increasing productivity and reducing costs.

As such, European gas companies are increasingly aware of the need to embrace information technology and, accordingly, there is a growing reliance on information systems and technology within the industry. But, more so than at any other time, the business value of IS/IT must be very clear and achievable. There are greater expectations for work process automation and improvement, system integration, corporate-wide data sharing, and cost savings.

Role of GIS/Geospatial Technology in Meeting the Demands of Today’s Industry Two case studies are presented focusing on meeting today’s industry challenges and achieving business value through the integration of key business, customer, and technical systems; GIS and related geospatial technology. Specific process/application areas include:

• Cathodic protection and corrosion monitoring
• Contractor notifications and one-call
• Emergency response
• Pipeline integrity management
• Pipeline maintenance
• Planning, engineering and design
• Right-of-way and property management
• Sales and marketing

Summary
This paper and associated presentation, in very short space, attempted to address the political and economic changes ongoing in Europe, the European energy and utility markets, the European gas market, the challenges facing European natural gas transmission companies today, their impact on organization and operation, and – through case study - expectations for geospatial, asset management and related IS/IT initiatives.