D-Day nears for gas pipe to Continent

ATTACKS by the enemy were the main worry when the first cross-Channel pipelines were planned to supply the D-Day forces. Fifty years later, a proposed pounds 400m descendant of Operation Pluto is in danger of being sunk by its allies.

Pluto laid four underwater petrol pipes, each with an inside diameter of three inches, running from the Isle of Wight to Cherbourg in France shortly after the invasion. It followed later with 17 more from Dungeness to the liberated Calais. But the lines were abandoned after the war, and while telephone, electricity and rail lines now tie Britain to the Continent, no new pipeline has been built.

A consortium of seven companies from five countries hopes to change that. The group, headed by BP and British Gas, wants to lay a natural gas interconnector 215km (133 miles) from Bacton on the Norfolk coast to Zeebrugge in Belgium. A decision on whether to go ahead is due on 8 December, and the first gas could start moving in two years.

From Zeebrugge, British gas would be piped to utilities in France, Germany, Holland and Belgium, and possibly as far afield as Spain and Italy. The line could also be used to bring imports from Siberian and North African fields into the UK. The only alternate route for imports is by tanker as liquefield natural gas. But UK port facilities for LNG shipments are out of date.

The consortium is optimistic about its chances. Since the study group started work in 1992, the pipe's diameter has been widened from 36 to 38 inches - and the cost of a 40-inch version has been calculated.

Two dozen companies have been asked to book capacity on the line before the make-or- break deadline. The organisers expect half to commit themselves to total shipments between 12 and 19 billion cubic metres a year (bcm/y).

Some analysts are far less confident, predicting the line's most critical allies, its customers, will give it only half-hearted support. After paying 1.2p per therm in transmission charges, producers would get less for their gas in Zeebrugge - about 15p per therm - than in the UK market where it is now worth around 17p. Leaving their gas beneath the bed of the North Sea may be more attractive than selling it at discount.

'I'm a bit cynical about whether or not the shippers will sign up,' said Gary Howorth of Arthur Andersen Petroleum Services. A study by Mr Howorth last year suggested European prices would have to be 4p higher than Britain's to warrant large exports to the Continent. Even then, many producers would be better off building direct links rather than landing their gas in Britain and going through the pipeline. 'I don't think it makes economic sense now,' he said.

If producers do sign up, it will be with an eye to future imports, said Julian Kennedy, a UK oil and gas analyst at Wood Mackenzie, the Edinburgh- based consultancy. Profits will come when the flow is reversed, likely in its second decade of operation - after Britain's supply bubble bursts, and it becomes a net importer of gas.

'I'd be surprised if the capacity of the line is filled before then,' Mr Kennedy said.

But Paul Reed, director of the consortium's commercial study group, thinks the project will be successful from the start. 'The relative price between the UK and the Continent is a red herring,' he said, adding that shutting in wells or delaying development will cost producers in terms of lost earnings.

And demand on the Continent is forecast to increase to 450bcm/y by 2010. Presently contracted supplies to Europe are projected to peak at 350bcm/y in the late 1990s, so there will be upward pressure on prices. Over the same period, British reserves and new production could hit 415bcm. Coupled with the possibility of imports from Norway's North Sea fields, that could drive prices down here.

If commitments from shippers are lower than expected, the consortium will still have options: it could persuade customers to sign up for more capacity, or raise the unit price of transmitting the gas.

If the consortium's predictions are right, however, the pipeline could prove as successful as Operation Pluto in helping a European invasion.

(Map omitted)