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DONG/DUC

24. april 2003

Journal no. 3/1120-0301-0222/cp-arh Chairman of the Competition CouncilDirector of the Danish Competition

AuthoritySummary

1.On June 29, 1998, the partners of Dansk Undergrunds Consortium (DUC) and Dansk Naturgas A/S (today DONG Naturgas A/S) re-notified their agreements concerning the first mentioned company’s sale of natural gas to the latter.

2.By own initiative the European Commission´s Competition Directorate-General decided subsequently in July 2001 to take up the re-notified agreements, and together with the Danish Competition Authority the European Commission have negotiated with the parties about modifying the agreements in order to remove elements that were considered anti-competitive.

3.The parties have now committed themselves to a number of alterations, which will particularly lead to an end of the de facto monopoly of DONG as being the sole buyer of gas from the North Sea, and that A.P. Møller, Shell, and Texaco will neither co-operate on sales of “new” gas supplies nor re-negotiate prices.

4.The competition authorities considered the following elements of the notified agreements being anti-competitive:

  • The agreements cover the majority of the natural gas produced by the DUC and the agreements are long-term.
  • DONG obtains its right to first negotiate “new” gas supplies for a specific period of time.
  • Concerning two of the price clauses in the agreements, the clauses must be applied only for the settlement of gas as far as DONG can demonstrate that such gas volumes have been sold to specific customer groups.
  • If necessary, DONG can claim re-negotiation of the agreements in cases where the DUC partners sell natural gas to third parties. This clause can be interpreted in such a way that DONG would be able to claim a reduction of the take-or-pay volume similar to the volume that the DUC might have sold on the Danish market.

1.Further, the DUC partners´ joint negotiations with DONG about the sale of the DUC partners´ production are found anti-competitive – partly by entering the agreements themselves and partly in connection with any re-negotiation of prices.

2.In spite of the fact that the parties at certain points have disagreed on the findings, the parties have undertaken to alterate the agreements and further incorporate steps to enhance the competition. This has lead to the following undertakings:

  • The DUC partners will over a period of 5 years, beginning January 1, 2005, sell more than 7 billion m3 natural gas to other companies than DONG. This amounts to an annual volume of approx. 1.4 billion m3, which is approx. 17% of the DUC partners´ annual production.
  • Until the DUC partners have sold the above mentioned volumes to third parties and a specific period of time has passed from the first day using a new pipeline, DONG will refrain from buying already known “new” gas volumes. The new gas pipeline connects the DUC partners´ fields in the North Sea to a foreign pipeline in the North Sea with further connection to Holland and Germany.
  • DONG will waive its right to first negotiation of “new” gas supplies.
  • Certain clauses will be changed, so that DONG´s obligation to report to the DUC partners is being revoked.
  • DONG will waive its right to the re-negotiation clause not later than 6 months from the first day using a new pipeline.
  • DONG will relieve the conditions for third parties´ access to the DONG owned pipelines with the objective to make transportation of natural gas to and from the Danish market by other companies easier.
  • A.P. Møller, Shell, and Texaco will neither co-operate on sale of new natural gas volumes, nor co-operate on re-negotiation of prices. Henceforward these companies will therefore be competing with each other.

1.It is the assessment that the agreements will no longer have any significant anti-competitive effect, provided the companies apply these undertakings.

2.As a consequence of the common negotiations the parties have avoided a double hearing by authorities. Further the Commission and the Danish Competition Authority have combined their knowledge on the natural gas markets, on the special Danish conditions, on case law, etc. By adopting a solution with the parties solving the legal competitive risks of the agreements, the Danish Competitive Authority ensures a more competitive natural gas market in Denmark.

3.At a meeting of The Competition Council on January 29, 2003, the Chairman of the Competition Council and the Director of the Danish Competition Authority provided a mandate to announce to the parties that the notified agreements – provided that the parties comply with a number of undertakings – do not give rise to legal competitive risks.