Country analysis: France

France is one of the world's largest nuclear power producers, but has limited fossil fuel resources. The 2000 merger of its top two oil companies formed the fourth largest oil publicly-traded company in the world.
The information in this report is the best available as of April 2003 and is subject to change.

With an estimated GDP of $ 1.4 t in 2002, France is the fifth-largest industrialized economy. France is a founding member of the EU and a member of the Group of Seven (G-7) industrialized nations, the General Agreement on Tariffs and Trade (GATT)/World Trade Organization (WTO), the International Energy Agency (IEA), and the International Atomic Energy Agency (IAEA).
On January 1, 1999, France adopted the European single currency, the euro. In recent years, France's economy has experienced stronger growth in comparison to its neighbours. However, this growth is slowing down. France's economy grew 1.8 % in 2001 and is estimated to have grown only 1.2 % in 2002, its lowest level since 1996.
Recently, the French government has indicated that its public deficit was likely to have already breached the 3 % ceiling allowed by the EU's Stability and Growth Pact. Such a breach would trigger Brussels to issue a formal "excessive deficit procedure" against Paris, which could result in fines.

Traditionally, the role of the state has been stronger in France than in other Western European countries. France is one of the most economically centralized countries in Europe, with a strong history of state ownership in the aviation, telecommunications, and energy industries. However, the role of the government is now changing. Important economic and political developments in France include privatisation and increasingly frequent mergers and acquisitions (M&As) and hostile corporate takeovers, once virtually unheard of in the country.
Drivers of this movement towards decentralization include increased pressures of globalisation, compliance to EU privatisation directives, and political initiatives from the newly formed right-right government. Previously, the moderate socialist Prime Minister, Lionel Jospin, and the Gaullist President, Jacques Chirac headed the French government under the French system of governmental "cohabitation." The divided government moved slowly toward privatising France's energy industry, despite EU directives, calling for member states to relinquish control of their energy companies.

This gridlock has left France trailing its EU neighbours in opening its natural gas and power markets to competition. It has also sparked hostility, particularly in Spain and Italy, to France's state-owned utility company, Electricite de France (EdF), which acquired shares in some of their utilities.
President Jacques Chirac and newly appointed prime minister, Jean-Pierre Raffarin, have re-emphasised their desire to liberalize France's natural gas and electricity markets. In August 2002, they announced plans for the partial privatisation of EdF and state-owned Gaz de France (GdF). This came as part of a program to allow the private sector to invest in state-owned companies, as well as to raise money to reduce the government's budget deficit. In December 2002, the French parliament adopted the European Directive on natural gas deregulation into law, an act that the EU required in August 2000.

Energy
French energy policy has been relatively consistent in recent decades, with the main objectives including: securing energy supply, achieving international competitiveness, and protecting the environment.
The focus on energy security has led France to become one of the world's top producers and consumers of nuclear power. However, the French government has recently organized a national energy policy debate, which will focus on energy sources for the next thirty years, particularly the status of nuclear power and the future of renewables.

Oil
Oil's role in France's energy sector has decreased substantially since the 1970s. Overall, the contribution of oil to primary energy consumption fell from 68 % in 1973 to 38 % in 2001. Nuclear power has largely replaced oil as a primary source for electricity generation.

Exploration and production
France is highly dependent on oil imports. In 2002, France imported about 1.85 mm bpd of its approximate 1.96 mm bpd oil consumption. France has oil reserves totalling only 148 mm barrels as of January 2003. France's domestic crude oil production comes from numerous small-sized wells, with total crude production of 26,900 bpd.
Despite France's limited domestic oil reserves and production, the French oil industry is an important actor in world energy markets. Major oil assets of French oil companies are located in the North Sea, Africa, and Latin America. French imports come primarily from Saudi Arabia and Norway, followed by the United Kingdom, Iraq, Iran, Nigeria, and Russia.

In early 1999, French oil company Total merged with Belgian oil company Petrofina to create TotalFina, the world's sixth-largest oil company and the third-largest oil company in Europe. In 2000, TotalFina merged with Elf Aquitaine to create TotalFinaElf. After the deal was completed, TotalFinaElf became the fourth-largest publicly listed oil company in the world, after ExxonMobil, Shell, and BP. The company has proven reserves of about 10.8 bn boe and production of about 2.1 mm bpd. TotalFinaElf aims to increase hydrocarbon production by nearly 40 % by 2005. The company owns more than 50 % of the refinery capacity in France, and is the seventh-largest refiner in the world.
In 1998, TotalFinaElf signed a deal with Iraq on development rights for Majnoon and Nahr Umr oil fields. Majnoon is the largest of Iraq's oilfields slated for post-sanctions development, with reserves of 12-30 bn barrels. In July 2001, angered by France's perceived support for the US "smart sanctions" plan, Iraq announced that it would no longer give French companies priority in awarding oil contracts, and would reconsider existing contracts as well. In February 2003, TotalFinaElf said that it was confident in retaining its Majnoon contract, irrespective of the Iraqi government in power.
In 2002, TotalFinaElf joined nine other companies in supporting the construction of the Baku-Tbilisi-Ceyhan oil pipeline project. The 1,100-mile route will carry oil from a terminal near Baku to the port of Ceyhan on the Mediterranean coast. The pipeline will be capable of carrying over 1 mm bpd of oil, and should be completed by 2005.

Downstream
France's crude oil refining capacity is 1.9 mm bpd. The country's largest refinery is TotalFinaElf's refinery at Gonfreville l'Orcher, with a capacity of 323,643 bpd. Increasingly strict EU environmental regulations for refineries are in large measure behind recent upgrades in the French refining sector. The regulations will become stricter in 2005, and substantial investment in the refining sector will be necessary to meet these new mandatory targets. ExxonMobil has begun adapting its Port Jerome refinery to 2005 EU specifications.
Because oil security has been such a concern for French energy policy-makers, there is a French law allowing the French government to refuse to close a refinery if it believes its supply or price security is at risk. Essentially, this gives the French government veto power over EU legislation regarding refineries. This could become an important issue as the EU's environmental standards are strengthened.

Natural gas
Natural gas has increased its share of France's total energy consumption from 7.2 % in 1973 to 15.3 % in 2002. France has limited natural gas resources (506 bn cf as of January 2003), and therefore imports almost all of the natural gas it consumes. Natural gas consumption was estimated at 1.48 tcf in 2001, an increase of 4.5 % over 2000.

Sector organization
The French natural gas industry is run by Gaz de France (GdF), the state-held company with a monopoly on importation and distribution of natural gas in France. By 2003, GdF aims to possess sufficient reserves to produce at least 15 % ofthe natural gas it sells. The company's annual production capacity currently stands at more than 70 bn cf. GdF also has the largest underground storage capacity in Western Europe, with 318 bn cf, about 3 months supply.
During the last few years, GdF has sought to increase its holdings, particularly in the North Sea. In 2001, GdF acquired interests in Norway's Snoehvit (12 %) and Njord (20 %) fields. Snoehvit natural gas reserves are estimated at 7.3 tcf. In the same year, GdF acquired from Texaco about 21 % equity interest in twelve exploration licenses in the UK North Sea. GdF has also signed an agreement with Sonatrach to explore the Ahnet Basin in Algeria, as well as with two Egyptian utilities, EGPC and EGAS, to increase these companies' capacity to supply natural gas to Europe.

Last April GdF paid a reported EUR 213 mm for CalEnergy Gas (UK), which included four gas-producing fields in the southern region of the UK North Sea -- Johnston, Schooner, Windermere and Anglia -- as well as three exploration permits and four fields under study for gas development. Most recently, GdF acquired Preussag Energie of Germany. This purchase increased GdF's natural gas reserves to 2.8 tcf. TotalFinaElf has also expanded its natural gas portfolio. In November 2002, it finalized an agreement to buy 35 bn cf per year from Sonatrach. TotalFinaElf is also involved in developing the South Pars natural gas field in Iran.
Norway is France's top natural gas import source, followed by Russia and Algeria. Natural gas imports from Russia have been declining in recent years, while imports from Algeria have been rising. Imports will increase from Algeria when the Medgaz natural gas pipeline between Algeria and Algeria, Spain is completed. The pipeline will have a capacity 564.8 bn cf per year. TotalFinaElf and GdF both have 12 % shares in the pipeline and are expected to take their gas into France. GdF also imports LNG to its two terminals. In addition to long-term contracts, GdF buys natural gas on the spot market or with short-term contracts from the UK's North Sea.

GdF is establishing France as a hub for Western European natural gas. In October 1998, France for the first time became linked via pipeline to a foreign production field. The NorFra pipeline linked Norway's Troll gas field in the North Sea to the French natural gas grid. The pipeline is 521 miles long, and is the longest undersea natural gas pipeline in the world.
By 2005, the Norwegian pipeline is expected to supply one-third of France's total natural gas consumption. GdF is near completing the construction of the Les Marches du Nord-Est pipeline. It has already completed the first 124-mile part, which went operational in October 2001.
The second 186-mile part was expected to be operational in late 2002. GdF signed a 25-year contract with Italy's Snam for delivery of 212 bn cf of Norwegian natural gas through the pipeline. GdF plans to spend $ 2.5 bn 2001-2003 on developing its pipeline network and installations in France.

LNG
France is thelargest importer of LNG in Europe. It receives nearly 90 % of its LNG from Algeria. GdF has the only two LNG terminals: the 159-bn cfpy-capacity facility at Fos-sur-Mer near Marseilles and the 353-bn cfpy-capacity facility at Montoir-de-Bretagne, near Nantes.
GdF announced in July 2002 that it plans to build a second terminal at Fos-sur-Mer. The new terminal will have a capacity of 288 bn cf per year and will come into operation in 2006.
In its recent report on France's natural gas market, the French Electricity Regulation Commission (Commission de Regulation de l'Energie) was critical of GdF's two LNG terminals, stating that the company should allow access at these terminals for other market entrants. CRE insists that GdF must reserve part of its new terminal in Fos-sur-Mer for new market entrants.
Increasing France's importance as a transit centre, GdF receives Nigerian LNG at its Montoir-de-Bretagne terminal that is swapped out to Italy's Enel. The terminal receives 141 bn cf annually, 124 bn cf under the Italian contract and 18 bn cf under a contract signed by GdF. In October 2002, GdF announced that it has agreed to purchase the entire output of "Train 1" of the Egyptian LNG project. The project is located at Idku, about 31 miles east of Alexandria.

Natural gas market privatisation
The French government has been slow to liberalize its natural gas market according to the European Directive (98/30/EC). In December 2002, the French parliament, almost 3 years past the EU deadline, made the Directive into national law. The Directive requires EU members to make 20 % of the natural gas market open to competition. GdF had, nonetheless, already opened its grid to third-party access in August 2000, allowing France's largest industrial consumers to choose their suppliers.
The French Electricity Regulation Commission (CRE) explained in its recent report that the market limits competition because it is inundated with long-term contracts with foreign groups. This allows GdF to dominate supply. CRE plans to ensure competitive conditions, which will include introducing more flexibility into contractual terms, particularly when the commission takes complete regulatory control of the natural gas market in 2004.

Movement towards changing the status of GdF from a state-owned enterprise to a joint stock company has been slow. France has been one of the slower countries in the EU to pave the way for competition. Although France adopted draft legislation in May 2000, the full national parliament did not pass a law to open the market until recently. The newly formed government has indicated that they plan to begin this process.
Prime Minister Raffarin pledged in August 2002 partly to privatise GdF by early 2004. In 2002, the French government already allowed the privatisation of the country's natural gas transport network, which GdF and TotalFinaElf purchased.

Coal
France has relatively small coal reserves of only 40 mm short tons. France neither produces nor consumes significant amounts of coal. Since 1973, coal production decreased by 91 % and consumption by 57 %. Coal-fired electricity has been mostly replaced by nuclear power. Coal imports come from Australia, the United States, Poland, Germany and South Africa.
The French government has supported the coal industry since the 1994 National Coal Pact between Charbonnages de France (CdF), the state coal company, and French coal miners unions. According to the agreement, the industry would receive state support as it was gradually phased out all together. All French coal mines are slated to be shut down by 2005. In May 2001, the EC authorized France to pay 991 mm euros in state aid to the coal industry.

Electricity
France is the second-largest electricity market, consumer and generator in Europe behind Germany. It is the largest exporter of electricity in Europe. France generates roughly 77 % if its electricity from nuclear power plants.

Sector organization
France's electricity sector is dominated by the wholly state-owned utility company, Electricite de France (EdF), which produces, transports, and distributes over 95 % of electricity in France. EdF is the last major state-run electricity monopolist in the EU, as most of France's neighbours have privatised their electricity companies.
There has been, however, partial liberalization of some aspects of France's electricity sector. There are currently only two companies of any size in France that may be able to compete with EdF on a limited basis. The first is CNR, Compagnie Nationale du Rhone. France's second-largest electricity group, which produces about 3 % of France's electricity. In August 2001, CNR and Electrabel of Belgium created a company called Energie du Rhone, which markets electricity produced by both of these companies. The second producer is SNET, Societe Nationale d'Electricite et de Thermique, a subsidiary of French coal utility Charbonnages de France (CdF). SNET's shareholders include CdF (51 %), EdF (18.7 %), and Spain's Endesa (30 %).
Endesa has recently announced interest in increasing its share in SNET.

Electricity market privatisation
The 1996 EU Directive on the electricity market required that at least 26 % of electricity sales in EU member countries be opened to competition, beginning in February 1999. This requirement increased to 28 % in February 2000 and to 33 % in 2003.
In February 2000, a full year after the first EU deadline, France passed legislation that began the electricity sector's liberalization. Since that time, about 1,800 large industrial and commercial consumers (those using more than 16 mm kWh per year), comprising about 30 % of the market, have been able to choose their electricity supplier. As of February 2003, 37 % of the French market is open to competition. All facilities with annual electricity consumption above 7 GWh are able to choose their supplier.
Another step toward liberalization was the French government's creation of the Electricity Transmission Network (Reseau de Transport d’Electricite, RTE). RTE, which became official on July 1, 2000, operates France's high-tension transmission network and is independent of EdF. RTE's mission is to assure all clients fair access to the network. It also oversees natural gas deregulation.
In late November 2001, the Powernext electricity trading market was launched in France. Powernext auctions standard hourly contracts for physical delivery of electricity to business customers under responsibility of the RTE and guaranteed by Clearnet, a subsidiary of the Euronext stock exchange. Powernext aims to trade 10 % of the French market by 2003-2004, and also to act as a price reference for the electricity market. Powernext plans to launch French electricity futures trading, which will include hedging products for all power-related risk (gas, electricity futures contracts, CO2, weather derivatives).

In recent years, EdF has acquired a number of large foreign companies, such as London Electricity and German utility EnBW. EdF acquired UK gas and electricity utility Seeboard in June 2002, and is attempting to take over AEP Energy Services in Norway. EdF's acquisitions, however, have not been without criticism, particularly from other EU member states and companies.
Many claim that EdF has made aggressive acquisitions in Europe's deregulated electricity market while France has been slow to open its doors to competition in the utility sector, which has protected EdF's market share in France. Another charge is that EdF's status as a state-owned monopoly has made it easier for it to purchase and outbid competitors abroad. Of particular controversy is the company's status as an Etablissment Publique et Industrielle (EPIC) which grants unlimited state guarantees against insolvency and bankruptcy. The EU Competition Commission recently announced in March that it will investigate these grants.

Spain and Italy have also attempted to block the state-owned EdF from entering their privatised electricity markets. Both countries adopted regulations, which limited EdF's voting rights in the companies in which it acquired shares. Spain, however, compromised in October 2002 by allowing the takeover of part of Hidrocantabrico in return for France increasing the interconnection between the two countries from 1,000 MW to 4,000 MW by 2006.
In the case of Italy, EdF and Fiat took control of Edison in 2001. Edison is 76 % controlled by Italenergia, an energy consortium in which EdF has an 18 % stake. In response, the Italian government passed a decree to reduce EdF's voting rights in Italenergia to 2 % in the hope of blocking the French state-owned company from having partial control of the company.

EdF and the Italian government have been trying to reach a compromise so that the voting restrictions can be lifted. Italy would like to see the Italian electricity group Enel be allowed to buy 20-30 % stakes in four French nuclear power plants. A final agreement is still pending.
The French government plan to part-privatise EdF by 2004 has faced some difficulties recently. EdF and GdF renegotiated retirement plans with four labour unions. However, the Confederation Generale du Travail (CGT) rejected the plan. Under current law, the companies bear the direct cost of retirement, but are backed by state guarantees. The new plan would take the charges off the companies' books in order make them attractive to private investment. It will remain difficult for the French government to begin the privatisation process until this matter is settled.

Nuclear
France is the world's largest nuclear power generator on a per capita basis, and ranks second in total installed nuclear capacity (behind the United States). Because of France's limited domestic energy sources, energy supply security and reliance on imports are major issues in France.
Government policy has strongly promoted increases in nuclear power generation over the past three decades. Currently, about 77 % of France's electricity comes from the country's 58 nuclear reactors. This represents a dramatic change from 1973, when fossil fuels accounted for more than 80 % of French power generation.
France is now seen to be retreating slowly from its staunchly pro-nuclear position. Previously, the government planned to have nuclear power reach 100 % of electricity generation. Environmental objections have increased in recent years, however. Germany's decision to phase out nuclear power started a public debate within France about the future of its own industry, and public opinion polls showed that a growing percentage of the public favours an end to nuclear power.

France must now decide whether to replace obsolete nuclear plants with more modern nuclear plants, or to begin phasing out nuclear power. A number of reactors will need to be replaced around 2015-2020. The new right-right government has indicated that it is preparing to authorize EdF to begin planning a new nuclear unit, based on the Franco-German EPR (European Pressurized Reactor) design. However, it will wait on making a final decision until the conclusion of the national energy policy debate, which began in January 2003.
In September 2001, the French government restructured its nuclear sector into a single government holding company, Areva. The Areva Group is a combination of Cogema, Framatome, CEA Industrie, and the Commissariat a l'Energie Atomique (CEA), the French Atomic Energy Agency, which is the major shareholder of the Areva Group with nearly 80 %. The group presides over the country's major nuclear enterprises, including mining, fuels, treatment, recycling, decontamination and engineering. The French government plans in the long term to offer Areva shares to outside investors, although the CEA will retain control.
France is one the few countries in the world with a nuclear reprocessing plant. Cogema's La Hague facility received authorization from the French nuclear energy regulator to start operations of two new facilities, hull and end-pieces compacting and plutonium purification and conditioning, in January 2002.

Environment
In terms of environmental issues, France is noted for using nuclear energy that results in less greenhouse gases, but this creates other environmental concerns. The country's lack of fossil fuel resources, in addition to making France keenly aware of the importance of energy security, paradoxically has made France rely on cleaner energy sources. However, air pollution, especially in Paris, remains a pertinent environmental issue to urban dwellers.
In general, however, most energy-related environmental trends in France appear to be headed for greater efficiency and less environmental impact. The country's rate of energy consumption is holding steady, and France's energy and carbon intensity are on the decline. In addition, France has announced an extensive 10-year plan to curb its carbon emissions in order to meet its commitments under the Kyoto Protocol -- one of the first countries to do so.
As part of this plan, France has reiterated its need to develop renewable energy sources to maintain its energy self-sufficiency. Although nuclear energy has helped to provide France with the energy independence the country desires, objections to nuclear energy are increasing. In the 21st century energy efficiency measures in all sectors of the economy likely will be needed in order to make further environmental improvement a realistic proposition.

Country overview
President: Jacques Chirac (since May 1995)
Prime Minister: Jean-Pierre Raffarin (since May 2002)
Independence: 486 (unified by Clovis)
Population (2002E): 59.4 mm
Location/size: Western Europe, bordering the Bay of Biscay and English Channel, between Belgium and Spain southeast of the UK; bordering the Mediterranean Sea, between Italy and Spain/547,030 sq km (slightly less than twice the size of Colorado)
Language: French 100 %, rapidly declining regional dialects and languages (Provencal, Breton, Alsatian, Corsican, Catalan, Basque, Flemish)
Ethnic groups: Celtic and Latin with Teutonic, Slavic, North African, Indochinese, Basque minorities
Religions: Roman Catholic 83-88 %, Protestant 2 %, Jewish 1 %, Muslim 5-10 %, unaffiliated 4 %
Defence (8/98): Army 203,200; Air Force 78,100; Navy 63,300

Economic overview
Economy, Finance, and Industry Minister: Francis Mer
Currency: Euro (EUR)
Exchange rate (3/21/03): 1 $ = EUR 0.942
Gross Domestic Product (GDP, 2002E): $ 1.42 tn
Real GDP growth rate (2002E): 1.2 % (2003F): 1.4 %
Inflation rate (consumer prices, 2002E): 1.9 % (2003F): 1.7 %
Unemployment rate (2002E): 8.8 % (2003F): 9.0 %
Exports of goods and services (2002E): $ 309.1 bn
Imports of goods and services (2002E): $ 299.1 bn
Major trading partners: Germany, Italy, Belgium, the United Kingdom, the United States
Major export products: Machinery and transport equipment, agricultural products, chemical products
Major import products: Machinery and transport equipment, agricultural products, chemical products, and energy

Energy overview
Proven oil reserves (1/1/03E): 148 mm barrels
Oil production (2002E): 76,917 bpd, of which 26,900 bpd is crude oil
Oil consumption (2002E): 1.96 mm bpd
Net oil imports (2002E): 1.85 mm bpd
Crude oil refining capacity (1/1/03E): 1.9 mm bpd
Natural gas reserves (1/1/03E): 506 bn cf
Natural gas production (2001E): 0.07 tcf
Natural gas consumption (2001E): 1.48 tcf
Net natural gas imports (2001E): 1.41 tcf
Coal reserves (2001E): 39 mm short tons
Coal production (2001E): 2.53 mmst
Coal consumption (2001E): 20.89 mmst
Electricity generation (2001E): 520 bn kWh, nuclear (77 %), hydro (14 %), thermal (8.2 %), less than 1 % other renewables
Electricity consumption (2001E): 415 bn kWh
Net electricity exports (2001E): 72.6 bn kWh

Environmental overview
Minister of Environment and Sustainable Development: Roselyne Bachelot-Narquin
Total energy consumption (2001E): 10.5 quadrillion Btu* (2.6 % of world total energy consumption)
Energy-related carbon emissions (2001E): 108.1 mm tons of carbon (1.6 % of world carbon emissions)
Per capita energy consumption (2001E): 177.8 mm Btu (vs. US value of 341.8 mm Btu)
Per capita carbon emissions (2001E): 1.83 tons of carbon (vs. US value of 5.51 tons of carbon)
Energy intensity (2001E): 5,805 Btu/ $ 1995 (vs. US value of 10,736 Btu/ $ 1995)**
Carbon intensity (2001E): 0.06 tons of carbon/thousand $ 1995 (vs. US value of 0.17 tons/thousand $ 1995)**
Fuel share of energy consumption (2001E): Oil (40 %), natural gas (15.3 %), coal (4.6 %)
Fuel share of carbon emissions (2001E): Oil (67 %), natural gas (21.5 %), coal (11 %)

Status in climate change negotiations: Annex I country under the United Nations Framework Convention on Climate Change (ratified March 25th, 1994). Signatory to the Kyoto Protocol (April 29th, 1998) and ratified the Treaty on May 31, 2002.
Major environmental issues: Some forest damage from acid rain; air pollution from industrial and vehicle emissions; water pollution from urban wastes and agricultural runoff.
Major international environmental agreements: A party to Conventions on Air Pollution, Air Pollution-Nitrogen Oxides, Air Pollution-Sulphur 85, Air Pollution-Sulphur 94, Air Pollution-Volatile Organic Compounds, Antarctic-Environmental Protocol, Antarctic Treaty, Biodiversity, Climate Change, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea, Marine Dumping, Marine Life Conservation, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands and Whaling. Has signed, but not ratified: Air Pollution-Persistent Organic Pollutants, Climate Change-Kyoto Protocol.

* The total energy consumption statistic includes petroleum, dry natural gas, coal, net hydro, nuclear, geothermal, solar, wind, wood and waste electric power. The renewable energy consumption statistic is based on International Energy Agency (IEA) data and includes hydropower, solar, wind, tide, geothermal, solid biomass and animal products, biomass gas and liquids, industrial and municipal wastes. Sectoral shares of energy consumption and carbon emissions are also based on IEA data.
**GDP based on EIA International Energy Annual 2001.