French Gas-Supply Security Seen Weakening on Link to Spot Market

France, Europe’s largest energy market after Germany, may weaken the security of its natural-gas supply as it ties regulated tariffs more closely to spot prices, the industry regulator said.

The share of supply indexed to the spot market will rise to 45 percent from 36 percent, Philippe de Ladoucette, head of the Commission de Regulation de l’Energie, told a parliamentary hearing today.

“This level is relatively high and if it goes any higher we will have to ask questions about our security of supply,” he said. “There could be a problem.”

GDF Suez SA, France’s biggest gas utility, has traditionally acquired the fuel through long-term contracts with companies such as OAO Gazprom, ensuring deliveries continue to flow even when a Europe-wide cold snap depletes supply. With a shift toward lower, spot rates, that security is diminished.

The method of calculating France’s regulated gas tariffs has changed in recent years, in part to reflect the greater emphasis on spot markets. The government has also urged GDF Suez to renegotiate its contracts to keep energy costs as low as possible for consumers.

Regulated prices have caused friction between GDF Suez, the government and smaller suppliers seeking to compete. The failure of successive administrations to allow prices to reflect costs has led to losses for GDF and difficulties for new entrants.

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