Ruhrgas AG History

Company Perspectives:

Natural gas is a popular energy, not only in Germany but throughout Europe. It is economical, environmentally friendly and convenient. All current energy forecasts predict that natural gas's share in energy supplies will continue to increase. In Germany, this share is already over 21% and is to rise to 28% by 2020. For us, one of the leading gas companies in Europe, this positive market potential is, however, not the only crucial factor deciding the success of the company. Gas companies are facing the challenge of continuing to be successful in a business environment which is undergoing radical change and where both energy policy and the energy industry are being liberalized. Competition will intensify. Furthermore, gas has to defend itself against rival energies, above all, heating oil. Gas-to-gas competition also requires efficient company structures and customer-oriented corporate strategies. We have a good starting position in the opening European gas market: We are the largest gas importer in Europe and one of the big European gas suppliers. We are on our way to becoming an integrated European gas transmission company with downstream involvement (e.g. investments in municipal utilities), upstream participations (e.g. in Gazprom of Russia) and growing involvement in Europe. With flexibility, a willingness to change and new ideas, we are shaping the further development of our core business and allied gas activities. Key Dates:

Key Dates:

1910:

Natural gas deposits are discovered at Neuengamme.

1926:

Vereinigte Stahlwerke AG and Stinnes-Zechen form AG für Kohleverwertung.

1928:

AG für Kohleverwertung is renamed Ruhrgas AG.

1929:

Ruhrgas establishes supply contract with the city of Cologne.

1938:

Natural gas deposits are discovered near Bentheim.

1942:

Ruhrgas's annual deliveries rise to three billion cubic meters.

1946:

Postwar pipeline reconstruction is 98 percent completed.

1956:

Erdgasverkaufs-Gesellschaft, a gas marketing company, is formed.

1970:

Ruhrgas signs agreement with Soyuzneftexport for purchase of Soviet natural gas.

1973:

Norwegian natural gas agreement is reached with Phillips Petroleum for the annual purchase of five billion cubic meters of natural gas.

1981:

Ruhrgas signs contract with Soyuzgasexport for the construction and financing of a new pipeline between Germany and the Soviet Union.

1995:

Ruhrgas Energie Beteiligungs-Aktiengesellschaft (RGE) is formed.

2000:

Memorandum of Understanding on environmental protection is established between Ruhrgas and Gazprom.

Company History:

Ruhrgas AG is Germany's largest natural gas distribution company. The rise in the company's fortunes has paralleled the massive growth in the use of natural gas in Europe since World War II. With the discovery of new natural gas reserves in northern Germany, Siberia, and the North Sea in the 1950s and 1960s, along with growing public awareness of the environmental importance of burning cleaner fuels, natural gas emerged as a leading alternative to other fossil fuels. During the period of German reintegration, Ruhrgas was a major player in the transformation of East Germany's centralized energy industry into a competitive market. The opening of borders in the former Soviet Bloc allowed Ruhrgas to further expand its pipeline networks, linking Germany to valuable natural gas reserves in the East. Even with the appearance of rival concerns like Wingas in the 1990s diminishing the company's market share, Ruhrgas remained the industry leader through its aggressive exploration of emerging energy sources in the North Sea, the Baltic region, and Eastern Europe. Although the company is officially part of the Ruhrgas Group, the name Ruhrgas AG generally is recognized to refer to the corporation as a whole.

The Development of Fuel Technologies

Natural gas is a hydrocarbon mixture consisting, in large part, of methane. Although natural gas has been used for fuel in China for at least 3,000 years, it was unknown in Europe before its discovery in England in 1659. Natural gas is used primarily for space heating, manufacturing processes, and power generation. Until the early 1960s, natural gas tended to be seen as an unwelcome byproduct of oil production. Since long-distance transportation was difficult or expensive, many producing companies did not bother to separate the gas and sell it commercially. They simply burned or 'flared' it off near the wellhead. Many of the world's oil fields were lit at night by these natural gas waste flares.

Most of the early advances in natural gas technology occurred in the United States, where natural gas is produced in abundance. The invention of leakproof pipe-coupling in 1890 is regarded as the beginning of modern long-distance pipeline transportation of natural gas. From the late 1920s, further developments in pipeline technology and the construction of ten major transmission systems eventually made natural gas cheaper to transport and affordable to U.S. consumers. By the 1930s, natural gas was rapidly replacing other energy sources as a home-heating material in the United States.

The development of the natural gas industry in Europe was much slower. The economic dislocations of the 1930s and World War II also slowed the development of the European industry. As late as 1965, only one percent of German energy needs were met by natural gas and few residential customers heated their homes with it. Coal-derived artificial gases and other materials dominated the industrial market, and oil and coal dominated home heating.

Early History of Ruhrgas

Ruhrgas has its earliest antecedents in a number of artificial gas producing and selling firms in the Ruhr, Germany's most important industrial area, which today encompasses Essen, Dortmund, and several other cities. Coal-derived gases predominated; the area is at the center of a rich coal deposit.

The first German gasworks, for street lighting, was built in Hannover in 1825, but Ruhrgas's home city of Essen did not have its own gasworks, Essener Gas A.G., until 1856. Although artificial gas became popular for manufacturing processes and municipal street lighting, it was less competitive with oil and petroleum products for heating purposes throughout most of the 19th century. The abundant coal of the Ruhr made artificial gas especially attractive to businesses. By 1900, the German gas industry was producing 1.2 billion cubic meters annually.

The first commercial German natural gas deposits were discovered in bore holes at Neuengamme in 1910. Between 1911 and 1919, when the source failed, small quantities from these deposits were used industrially in Hamburg. Coal-derived gases would continue to dominate the German market for another 50 years.

In 1926 Vereinigte Stahlwerke A.G. and Stinnes-Zechen set up a new gas transportation company, the A.G. für Kohleverwertung, in Essen. The directors envisaged a system for selling surplus gas to customers throughout the entire country. The following year, the company signed a contract to transport gas to the city of Hannover. On May 30th, 1928 the company was renamed Ruhrgas AG.

By 1929 Ruhrgas had secured a supply contract with the city of Cologne, had built a 180-kilometer pipeline from Hamm to Hannover, and had planned a pipeline to Frankfurt. During the early 1930s gas supply contracts were concluded with Düsseldorf and with a number of industrial concerns, including the Adam Opel motorworks. By 1936 Ruhrgas was delivering two billion cubic meters of coke-derived gas along a 1,128-kilometer-long network.

In 1938 the Deilmann company found natural gas near Bentheim in north Germany. The well was large and the flow took weeks to control, but it was another six years before a 75-kilometer pipeline was built to carry this gas to chemical works in Hüls.

In 1942 Ruhrgas was prospering, with deliveries of more than three billion cubic meters over a pipeline network of 1,644 kilometers. Although crews worked to repair frequent bomb damage, Allied bombing took a heavy toll, and gas deliveries fell drastically. At times only three out of 51 cokeries on the pipeline network were capable of supplying gas.

The Emergence of Natural Gas After World War II

After the war Ruhrgas recovered more quickly than many German concerns. By 1946, 98 percent of its pipeline network was restored but deliveries were only one billion cubic meters, one-third of the volume reached during wartime peak levels. Two years later, Ruhrgas and Thyssengas were exporting gas to The Netherlands. In 1951, with demand greater than supply, Ruhrgas was delivering gas at levels significantly higher than its 1942 record levels. The company's pipeline network had reached 2,000 kilometers and the company employed 1,043 workers.

In 1954 Ruhrgas began to take natural gas from the Bentheim field and began to demonstrate to its customers that this fuel, with estimated reserves of 20 to 30 billion cubic meters in West Germany alone, could be of the same quality as coal-derived gas. In 1956 a new company, Erdgasverkaufs-Gesellschaft of M&uuml#ter, was organized to market the newly discovered natural gas of north Germany. Within four years the Dutch firm NAM discovered the Slochteren field in The Netherlands, then the largest natural gas find in Europe.

From 1965 onward, even larger offshore discoveries in the North Sea in Dutch, British, Norwegian, and Danish sectors made it clear that Europe had large reserves of commercially exploitable natural gas. Europeans began to adapt American pipeline technology to bring it ashore and distribute it over long distances. Cheap natural gas won many new industrial and municipal customers. During the same period, Soviet technicians found huge natural gas reserves in Siberia. The Soviet government realized that new technology made its gas exportable to Europe as a lucrative hard-currency earner.

Natural gas looked like the fuel of the future, but through most of the 1960s coke-derived gas transport remained the primary business of Ruhrgas as it extended its pipeline network through the most populous regions of West Germany. Although in 1965 natural gas supplied only a small portion of the country's energy, it already represented ten percent of Ruhrgas's total deliveries of seven billion cubic meters. The company entered into large-scale supply contracts with Dutch and other gas production companies to ensure that it would be able to meet the booming demand. Supply contracts of 20 or 25 years' duration were normal in the industry.

From 1965 to 1968, 371 kilometers of extensive new pipelines were built in cooperation with Thyssen and other companies to transport north German and Dutch natural gas, first to Mannheim and then to south Germany.

In 1969 Ruhrgas and the Soviet agency Soyuzneftexport negotiated the sale of Soviet gas. Although the talks coincided with Chancellor Brandt's new Ostpolitik or initiative to improve West Germany's relations with the Soviet Union and other Communist neighbors to its east, they worried the country's American allies. On February 1, 1970 an agreement was reached, providing for the yearly sale of three billion cubic meters of Soviet natural gas to Ruhrgas. The deal also provided for the export of badly needed pipe to the Soviet Union by the German industrial firm Mannesmann AG and financing by a consortium of German banks.

By 1970 natural gas already represented 70 percent of Ruhrgas's deliveries of 18 billion cubic meters along its 4,991-kilometer pipeline network. In February 1971 it reached an agreement with the Italian company SNAM to deliver gas from Aachen to the Swiss border along a pipeline now known as the Trans Europe Natural Gas Pipeline.

Increased quantities of natural gas were purchased under agreements with the Soviet Union. A 1974 contract provided for an annual delivery of 9.5 billion cubic meters until the year 2000. Ruhrgas, however, knew that it needed to diversify its supply sources. In 1973 it headed a buying consortium that negotiated a contract with Phillips Petroleum of the United States to buy an annual five billion cubic meters of Norwegian natural gas from the Ekofisk field in the North Sea.

By 1975, natural gas represented 89 percent of Ruhrgas's annual delivery of 27 billion cubic meters. The company entered further consortia to buy Norwegian gas. French companies also wanted access to Soviet natural gas. In June 1976 Gaz de France joined with Ruhrgas to form Mittel-Europäische-Gasleitungsgesellschaft (MEGAL GmbH), a pipeline company, to transport Soviet gas from the German-Czech border to the French border.

In September 1977 gas from the Norwegian Ekofisk field began to flow through a new subsea pipeline to the German port of Emden in fulfillment of a contract between Phillips Petroleum and a consortium led by Ruhrgas, which included Gasunie of The Netherlands and Gaz de France. Ruhrgas's share of the gas was 50 percent.

In November 1981 Ruhrgas took the controversial step of signing an agreement with the Soviet gas export agency Soyuzgasexport to help build and finance a huge new gas pipeline from the Soviet Union. For the obvious needs of diversification, Ruhrgas sought and contracted with a number of other countries to supply its needs. Ruhrgas continued to exercise options for increased deliveries from The Netherlands. In 1991 the company signed an agreement with the Dutch company Gasunie for the supply of an additional 100 billion cubic meters up to the year 2013. In addition, Ruhrgas was developing facilities at the German port of Wilhelmshaven for the import of liquefied natural gas (LNG) from Algeria, Nigeria, and other far-flung sources.

In September 1982 Ruhrgas joined a consortium including Thyssen, Gasunie, and Gaz de France to buy natural gas through an 850-mile undersea pipeline from the Norwegian Statfjord field. The line connected with the Ekofisk pipeline that had been delivering gas to the north German port of Emden since 1977. In 1985 this pipeline became operational. The company announced in August 1990 that it intended to make Norway a more important supply source. The same year, Ruhrgas and the other German importers exercised their option under the 1986 Troll Agreement with Norway and seven Norwegian North Sea gas producers to increase their imports from 8.5 billion cubic meters a year to 13.5 billion cubic meters per year beginning in 1993. Ruhrgas would take about 80 percent of this annual increase. Two new undersea pipelines were planned.

In the early 1990s 24 percent of Germany's natural gas came from domestic sources, 32 percent from the former Soviet Union, 28 percent from The Netherlands, and only 15 percent from Norway. Denmark provided just one percent of the total. In recognition of Norway's importance, Ruhrgas launched a major public relations effort in Norway, sponsoring scholarships for Norwegian students in Germany and German-Norwegian history conferences.

Through the 1980s the German gas industry was able to expand its residential market steadily at an annual rate of 300,000 households per year, as more German household consumers switched from oil- and coal-based heating systems to natural gas. By 1990 about 33 percent of West Germany's households had gas-fired central heating. In 1990 gas demand in West Germany reached an all-time high of 68.6 million tons of coal equivalent (tce).

Expanding European Energy Markets in the 1990s

The unification process that began in November 1989 connected the western German gas industry with the markets in the former East Germany, where gas demand was 9.5 million tce units and represented only 8.7 percent of East German energy consumption. A large gas supply infrastructure was already in place but 40 percent of deliveries were to power plants and 35 percent to industry. Only four percent went to private households.

This market opportunity was enhanced greatly by the realization that much of East German industry was an ecological disaster area. Heavy dependence on brown lignite coal and coal-derived gas meant that pollution levels were far above the levels considered acceptable in West Germany and other European Community countries.

Concern about the environment gave a huge boost to Ruhrgas and other natural gas companies as they stressed the environmental advantages of their product. Studies by the German Environmental Protection Agency showed that natural gas was the cleanest fossil fuel and interfered less with the environment than any other source of energy. It was moved by buried pipelines, almost no pollution or waste heat was produced by its conversion into a secondary energy source and, finally, natural gas-fired plants emitted hardly any uncombusted matter such as soot.

In the past, the German government had to balance these advantages against the fact that Germany's coal reserves remained vast. In the former West Germany alone, they were estimated at 25,000 million tons and unified Germany was second in the world after the former Soviet Union in the production of lignite brown coal. Government policy had provided subsidies to keep delivery systems in working order in the event of an energy crisis, but the 'green' vote and the environmental crisis were compelling an increased emphasis on natural gas.

By December 1989 Ruhrgas had signed an extensive cooperation agreement with Schwarze Pumpe (Black Pump), the East German energy group. The agreement provided for contracts at all levels and envisaged the connection of the two countries' gas supply grids.

By the middle of 1990, the Erdgasversorgungsgesellschaft (EVG), a subsidiary of Ruhrgas and Verbundnetz Gas AG (VNG), a company originally under Schwarze Pumpe's authority and responsible for the country's gas supply network, began to build a 300-mile connecting pipeline through Thuringia and Saxony at a cost of DM 600 million. Ruhrgas agreed to supply VNG with two billion cubic meters of natural gas when the pipeline was completed in 1992.

In June 1990 Ruhrgas purchased 35 percent of VNG from Treuhandanstalt, the East German privatization agency. Another ten percent was purchased by the West German company BEB. In September 1991 the remaining shares in VNG were divided up among the East German cities and several European energy companies, giving them access to the East German gas network. Wintershall AG, a subsidiary of BASF with 15 percent of VNG, and British Gas, with five percent of VNG and an interest in several former municipal and local networks, announced plans for aggressive new investment and competition. Wintershall said it would challenge Ruhrgas's traditional market dominance with new pipelines.

In 1990 Ruhrgas sold 510 billion kilowatt hours of gas, 98 percent of which was natural. With a commanding position in the German gas industry and ownership of its own highly complex transmission system of pipelines, compressor stations, underground storage, and other facilities, Ruhrgas had become a national institution.

As the end of 1992 and the European single market drew nearer, Ruhrgas argued for a communitywide, market-oriented nonregulatory energy policy. Ruhrgas believed this philosophy, which had guided German energy policy, would ensure future success in the expanding European market.

In 1994 Ruhrgas AG established two holding companies: Ruhrgas Energie Beteiligungs-Aktiengesellschaft (RGE), which assumed control over shares in 26 utilities throughout Germany and Europe, and Ruhrgas Industries GmbH, which was responsible for pipeline and equipment design, manufacturing, and construction. After the reorganization the company expanded its interests over a wider territory. In March 1998 it reached an agreement with ROMGAZ to acquire natural gas supplies in Romania, and in June of the same year it founded Ruhrgas Austria AG, with the purpose of building its client base beyond the Vararlberg and Tyrol regions.

The late 1990s also witnessed increased natural gas extraction in the North Sea. In 1997 Ruhrgas purchased stakes in the Elgin/Franklin natural gas fields via its U.K. subsidiary. That same year it came to agreement with BP Gas Marketing Ltd. for 15 billion cubic meters of natural gas through the year 2013. In 1998 the Interconnector, the first gas pipeline between the United Kingdom and Europe, was inaugurated. Ruhrgas purchased a five percent stake in the pipeline, later increasing its share to ten percent. This investment, coupled with already existing transport deals with the Belgian transit company Distrigaz, helped make Ruhrgas the only German company with a long-term agreement for the transport of natural gas between the British and German markets.

Ruhrgas participated in a number of environmental initiatives throughout the latter part of the decade. In 1997 the company entered into a Joint Implementation agreement with OAO Gazprom in Russia. A strategy promoted by the United Nations, Joint Implementation was a means of promoting climate protection through 'cross-border' cooperation. In response to this arrangement, the two companies received a European Better Environment Award in 1998. In June 2000 the companies fortified their compact with a new Memorandum of Understanding, the purpose of which was to devise cost-effective ways to reduce greenhouse gases. New measures included repairs to pipelines in the Vladimir region of Russia, the pursuit of a more economical means of gas dehydration, and a lowering of fuel consumption in compressor stations. The overall goal of the project was to reduce carbon dioxide emissions by 4.5 million tons a year.

During this time Ruhrgas also investigated new ecological applications for natural gas use. In May 2000 the company participated in a joint project with other leading energy companies in the construction of 15 innovative, low-energy homes, with the intent of reducing carbon dioxide emission through the use of clean-burning appliances.

By 1999, Ruhrgas had controlling interests in more than ten thousand kilometers of pipeline, which were transporting 586 billion kwh (kilowatt hours) of natural gas. The company continued to derive gas supplies from diverse sources, with 35 percent coming from Russia, 22 percent from Norway, 18 percent from The Netherlands, and five percent from Denmark and the United Kingdom. Meanwhile, domestic production of natural gas stood at 20 percent. In addition, the company had more than 1,600 billion cubic meters of natural gas under contract through the year 2030, giving it the largest supply base in Europe. Estimates from that same year showed that 43 percent of all German homes, and 75 percent of new homes, were heated with natural gas.

The opening of new markets and the increase in competition also left Ruhrgas vulnerable to takeover. In November 2000 rival energy company Eon, the second largest utility in Germany, announced its intention to purchase 17 percent of Ruhrgas AG, in addition to the 18 percent it already owned through its shares in Ruhrkohle. While Eon's interest in Ruhrgas hinged on its desire to have an active role in shaping the gas company's policy, by year's end it remained to be seen what impact the proposed acquisition might have on Ruhrgas's activities throughout the continent.

Principal Subsidiaries: Ruhrgas Energie Beteiligungs-Aktiengesellschaft (RGE); Ruhrgas Industries GmbH; NETRA GmbH Norddeutsche Erdgas Transversale & Co. Kommanditgesellschaft (44.3%); Etzel Gas-Lager Statoil Deutschland GmbH & Co. (74.8%); Ruhrgas UK Exploration and Production Ltd.; GasLINE-Telekommunikationsnetzgesellschaft deutscher Gasversorgungsunternehmen mbH & Co. Kommanditgesellschaft; Ruhrgas Austria AG.

Principal Competitors: N.V. Nederlandse Gasunie; RWE-DEA Aktiengesellschaft für Mineraloel und Chemie; VEBA Oel AG.

Further Reading:

• Davis, Michael, 'Texas Gets European Gas Dispute; Marathon Case Belongs in State Court, Panel Says,' Houston Chronicle, June 13, 1997.
  Gas Today and Tomorrow, Essen: Ruhrgas, 1991.
• Harnischfeger, Utta, 'Eon Attempts to Seize Ruhrgas,' Financial Times (FT.com), November 14, 2000.

Source: International Directory of Company Histories, Vol. 38. St. James Press, 2001.