History of natural gas in Denmark
Power plants were converted to coal-fired plants and nuclear power was the subject of intense debate. It was around the same time that Dansk Undergrunds Consortium, DUC (then a co-operation between A.P. Møller-Mærsk A/S, Shell and Texaco) found oil and natural gas in the Danish part of the North Sea.
After a series of comprehensive technical and financial surveys, it was assessed that Danish deposits of natural gas in the North Sea could warrant the establishment of a Danish natural gas supply system.
Planning and control
The establishment of the natural gas project became a reality with the adoption of a bill on the establishment of a natural gas supply system by the Danish Parliament on 30 May 1979. A bill on heat supply was also adopted.
One of the objectives of the resulting Heat Supply Act was to ensure that, through national planning of heat supply, exploitation of natural gas and combined heat and power from the centralised power plants was given center stage in Danish energy supply.
In 1979, it was assessed that an appropriately rapid establishment of the expansion of combined heat and power and the natural gas project were not likely to happen without high-level national planning and control.
At the time of the adoption by the Danish Parliament of the bill on the establishment of a natural gas supply system, the energy company Dansk Olie og Naturgas A/S (today DONG Energy A/S, Denmark’s largest energy company, the majority of which is owned by the Danish State) had existed for a couple of years and the framework for its activities had been outlined. It was therefore natural that the primarily state-owned company should be responsible for establishing and operating the transmission network.
In terms of distribution, by 1978 Danish municipalities had established five regional natural gas planning companies, which were later converted to distribution companies (Hovedstadsregionens Naturgas, Naturgas Fyn, Naturgas Midt-Nord, Naturgas Syd and Naturgas Sjælland).
Financing of the natural gas project
The natural gas project soon ran into financial difficulties because of falling oil prices, while sales were failing to grow at the anticipated rate due to energy savings, amongst other things.
In order to remedy this, natural gas was exempted from taxes and in connection with tighter finance policy in 1985-86 oil and coal taxes were raised substantially, amongst other tings to address an increase in energy consumption due to the rapidly falling international oil prices.
Prior to this, an agreement on sale of surplus gas to Danish power plants had been entered into in 1984, and in 1990 it was decided that the majority of the district heating plants and the block heating stations were to be converted to natural gas.
The financial situation of the natural gas project started to turn around in the 1990s, and the companies could begin to reduce their debt from the project’s early years. DONG Energy A/S took over the most debt-burdened regional companies, Naturgas Syd (in 1999) and Naturgas Sjælland (in 2001), and in 1999 an agreement was entered into between the Danish state, HNG and Naturgas Midt-Nord on debt settlement, so that the indirect state subsidies via the natural-gas tax-exemption scheme could be abolished.
From the start, DONG Energy A/S and the regional natural gas companies were monopolies in their respective regions. These monopolies, however, faced dismantling with the adoption of the EU 1998 Gas Directive. This Directive meant a gradual opening of the European natural gas markets. The Directive was implemented into Danish law with the adoption of the Natural Gas Supply Act, which entered into force on 1 July 2000.
This Act, including later amendments, entailed a gradual opening of the Danish natural gas market. An amended Gas Directive was adopted on 26 June 2003. This Directive sets out greater requirements for unbundling infrastructure from commercial activities, greater requirements for transparency in conditions for access to networks, and it prepares the ground for a more rapid opening of the market than provided in the old Directive, in that all commercial customers were to have market access from 1 July 2004, while all gas customers were entitled to market access from 1 July 2007.
Denmark in the front with market opening
With regard to opening of the market, Denmark was well ahead, with a complete opening of its market from 1 January 2004. With the demand of the Natural Gas Supply Act for company unbundling with effect from 1 January 2003, Denmark was also ahead in meeting the Directive’s stricter requirements to unbundle infrastructure and commercial activities.
With regard to greater transparency, Danish regulations were also well ahead of schedule, with requirements for regulated access to transmission and distribution networks.
Danish regulations were early in meeting the Directive’s requirements because the proposed changes in the coming Directive were taken into consideration as early as 2001 when the Natural Gas Supply Act was revised.
Naturally, it was not possible to predict all the details of the new Directive, and the remaining changes to the Natural Gas Supply Act, ensuring full implementation of the amended Gas Directive, were implemented through a legislative amendment, which entered into force on 9 June 2004.