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IMPORT OF LNG THE PUBLIC PRIVATE PROCESS OF

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‘Three cases of cooperation between the Ministry of Economic

    Affairs and LNG related firms on the import of LNG’

Supervisor | F.A.A. Boons

    Second reader | M.J.W. van Twist

Robert Zuurbier | 280033

9/23/2010

CONTENTS

    Summary ............................................................................................................................................................................................6 Preface and acknowledgements ................................................................................................................................................7 Chapter 1 Introduction ............................................................................................................................................................8 1.1 Research objective .....................................................................................................................................................8 1.2 Scope of the research ................................................................................................................................................9 1.3 Scientific relevance ....................................................................................................................................................9 1.4 Practical relevance .....................................................................................................................................................9 1.5 Research questions ................................................................................................................................................. 10 1.6 Structure of the thesis ............................................................................................................................................ 10 Chapter 2 Theoretical framework ..................................................................................................................................... 11 2.1 The basic idea: Easton’s system model ............................................................................................................ 11 2.2 From Easton to Schulz ........................................................................................................................................... 14

    2.2.1 Inputs and the initiation context .............................................................................................................. 15

    2.2.2 Typology and role ......................................................................................................................................... 15

    2.2.3 Procedures ....................................................................................................................................................... 16

    2.2.4 Effects: output, outcome and feedback .................................................................................................. 16 2.3 Schulz’s model adjusted: the conceptual framework .................................................................................. 17

    2.3.1 The initiation process: visions on cooperation ................................................................................... 18

    2.3.2 Typology: goals, actors and partners...................................................................................................... 22

    2.3.3 Procedures ....................................................................................................................................................... 26

    2.3.4 Effects ................................................................................................................................................................ 27 2.4 Management of expectations ............................................................................................................................... 28 Chapter 3 Research design and methodology ............................................................................................................... 30 3.1 Design .......................................................................................................................................................................... 30

    3.1.1 Research strategy: case study ................................................................................................................... 30

    3.1.2 Unit of analysis and actors ......................................................................................................................... 30 3.2 Research method ..................................................................................................................................................... 31 3.3 Accuracy of measurements .................................................................................................................................. 31

    3.3.1 Reliability ......................................................................................................................................................... 31

    3.3.2 Validity .............................................................................................................................................................. 31 3.4 Methodology ............................................................................................................................................................. 32

    3.4.1 Measuring initiation process ..................................................................................................................... 32

    3.4.2 Measuring typology ...................................................................................................................................... 33

    3.4.3 Measuring procedures ................................................................................................................................. 33

    3.4.4 Measuring effects .......................................................................................................................................... 33

    3.4.5 Measuring management of expectations............................................................................................... 33 Chapter 4 Policy Context ...................................................................................................................................................... 34 4.1 Policy developments towards the gas hub ..................................................................................................... 35

     The gas hub as icon in Dutch energy policy .................................................................................................... 35 4.2

    4.3 Energy related trade missions ............................................................................................................................ 37 Chapter 5 Three country units on the import of LNG ................................................................................................. 38 5.1 LNG, IOCs and NOCs ................................................................................................................................................ 38 5.2 Cooperation as solution: Project Delta ............................................................................................................. 40 5.3 Three cases: Algeria, Angola and Qatar............................................................................................................ 42 5.4 Algeria ......................................................................................................................................................................... 43 5.5 Angola .......................................................................................................................................................................... 46 5.6 Qatar ............................................................................................................................................................................ 48 Chapter 6 Research findings ............................................................................................................................................... 51 6.1 Initiation context ..................................................................................................................................................... 51 6.2 Typology ..................................................................................................................................................................... 52

    6.2.1 Orientation and role of the cooperation ................................................................................................ 52

    6.2.2 Actors analysis ............................................................................................................................................... 53

    6.2.3 Partner selection ........................................................................................................................................... 54 6.3 Procedures ................................................................................................................................................................. 56

    6.3.1 Meetings ........................................................................................................................................................... 57

    6.3.2 Activities: trade missions ........................................................................................................................... 58 6.4 Effects .......................................................................................................................................................................... 62

    6.4.1 Output ............................................................................................................................................................... 62

    6.4.2 Outcomes and feedback .............................................................................................................................. 63 6.5 Management of expectations ............................................................................................................................... 63

    6.5.1 Expectations in paradoxes ......................................................................................................................... 63

    6.5.2 Case specific expectations .......................................................................................................................... 67 Chapter 7 Conclusions, discussion and recommendations ...................................................................................... 69 7.1 Discussion on findings ........................................................................................................................................... 69 7.2 Conclusions ................................................................................................................................................................ 70 7.3 Recommendations................................................................................................................................................... 73 7.4 Notes for further research .................................................................................................................................... 74 Bibliography .................................................................................................................................................................................. 75 ANNEX I Questionnaire ...................................................................................................................................................... 78 ANNEX II Interviews ............................................................................................................................................................. 81 ANNEX III Overview LNG related firms per country ................................................................................................ 101 ANNEX IV Organisational need for cooperation ........................................................................................................ 102 ANNEX V Partner selection criteria LNG related firms .......................................................................................... 107

IST OF FIGURES L

    Figure 1 Easton’s system model (Easton, 1965a) ............................................................................................................. 12 Figure 2 Process of committees (Schulz, Van Twist and Geveke 2006, 23) ............................................................. 14 Figure 3 Conceptual framework of the process of cooperation ................................................................................... 18 Figure 4 Input of conceptual framework ............................................................................................................................. 19 Figure 5 From consideration to ambition (Kaats, van Klaveren and Opheij 2006, 110) ..................................... 21 Figure 6 Typology stage of conceptual framework .......................................................................................................... 22 Figure 7 Triads of relationships (Stopford, Strange and Henley 1991, 22) ............................................................. 24 Figure 8 Procedures stage of conceptual framework ...................................................................................................... 26 Figure 9 Output stage of conceptual framework............................................................................................................... 27 Figure 10Worldwide LNG Liquefaction and regasifacation capacity (National Energy Board Canada, 2009)

     ............................................................................................................................................................................................................ 39 Figure 11 Proposed LNG consortia in the Netherlands (shareholders and capacity) .......................................... 40 Figure 12 Combined results for the need for cooperation............................................................................................. 52 Figure 13 Interrelations between actors, (based on Stopford, Strange and Henley 1991, 22) ......................... 54 Figure 14 Four types of energy trade missions (J. W. De Vries 2009) ....................................................................... 59

LIST OF TABLES

    Table 1 Orientation of cooperation and characteristics (according to Schulz, van Twist and Geveke 2006)

     ............................................................................................................................................................................................................ 23 Table 2 Paradoxes of expectations (Klijn and van Twist, 2007a)................................................................................ 28 Table 3 Partner selection, differences between public and private partners ......................................................... 55 Table 4 Two roles of the Ministry of Economic Affairs ................................................................................................... 56 Table 5 Operational variables procedures .......................................................................................................................... 60 Table 6 Characteristics of the trade missions (trade missions marked with an * included the Dutch

    Minister of Economic Affairs) .................................................................................................................................................. 61 Table 7 Roles of public and private actors in the workgroups (based on Aamlid Syversen 2009) ................. 66

LIST OF TEXTBOXES

    Textbox 1 General premises of the System model (Easton, 1965a, 24-25) ............................................................. 13 Textbox 2 Porter’s and Fuller’s partner criteria (Child, Faulkner and Tallman 2005, 96-97) .......................... 25 Textbox 3 Gas Hub (Ministerie van Economische Zaken 2008A, 19) ........................................................................ 36

IST OF ABBREVIATIONS L

    BCM Billion Cubic Meters

    CSP Concentrated Solar Power, solar energy project

    EVD Economische Voorlichtingsdienst, agency of the Ministry of Economic Affairs stimulating

    international entrepreneurship

    IBO Investeeringsbeschermingsovereenkomst, Investment Guarantee Agreement IEA International Energy Agency, international organisation acting as energy policy advisor IOC International Oil Company, private multinational oil company

    LNG Liquefied Natural Gas

    LPG Liquefied Petroleum Gas

    NOC National Oil Company, state owned oil company

    MoU Memorandum of Understanding, bilateral agreement

    SUMMARY

    This research scrutinises the public private cooperation between the Ministry of Economic Affairs and LNG related firms in three workgroups, targeting three LNG exporting countries (Algeria, Angola and Qatar). The research focuses on the process of cooperation and the management of expectation. The theoretical background used for analysing the three workgroups and provide a prescriptive conceptual framework are based on Easton’s system model (1965a) (1965b) and the model of Schulz, van Twist and Geveke (2006), who define four stages in the process of cooperation in the case of committees. The conceptual framework adjusts the existing literature in order to analyse and prescribe the process of cooperation in the case of the Ministry of Economic Affairs and LNG related firms. The management of expectations is integrated in this process of cooperation, based on the theory of Klijn and van Twist (2007b). The main research question relates the management of expectations to the process of cooperation in the three workgroups: ‘‘How can the Ministry of Economic Affairs manage expectations of

    cooperation when applying Schulz’ model to the case of the process of cooperation between the Ministry of Economic Affairs and LNG related firms in order to realise LNG import ambitions from Algeria, Angola and Qatar?’

    The conceptual framework has provided the theoretical background to analyse and prescribe the process of cooperation between the Ministry of Economic Affairs and the LNG related firms. Schulz’s model has been revised in order to analyse the management of expectations during the process of cooperation. Here, the second stage of the conceptual framework, which involves the goal setting and partner selection, offers the opportunity for the Ministry of Economic Affairs to ‘think double’: the Ministry of Economic

    Affairs is able to play two roles in the three workgroups, as facilitator and as stakeholder. Now, the Ministry of Economic Affairs knows what the LNG related firms expect from the Ministry of Economic Affairs. Not only at the process level, which aims at the facilitating role of the Ministry of Economic Affairs and the process oriented role of the workgroups with a mediation and assisting goal, but also at the project level the Ministry of Economic Affairs should provide solutions for the LNG related firms to stimulate the LNG related firms.

    PREFACE AND ACKNOWLEDGEMENTS

    ‘[...] To understand [energy] issues, we often need to resort to models. They provide a simplified version of the complex realities, yielding knowledge that can prove crucial in the long run. As a politician, I can put this knowledge to good use. But I have to apply it to practical policy issues in a complex world. A world where markets fail, where economic agents are not always rational, and where the international balance of power is shifting. Today I'd like to explore these themes and their significance in terms of the international energy market[...]’. This is how a speech started given by the Minister of Economic Affairs Van der Hoeven, at a conference of the European Association for Environmental and Resource Economics in 2009, (2009a).

    This speech captures the essence of the thesis laying in front of you; the role of government in the dynamic energy market. My interest in the gas market was awakened at course at the TU Delft, ‘Electricity

    and Gas: Market Design and Policy Issues’, during which I’ve learned of the gas market and noticed a

    (European) policy gap on LNG. This brought me to the Ministry of Economic Affairs, where there was an opportunity to research the public private cooperation with LNG related firms.

    The process of writing this thesis was very interesting as I’ve learned much during this period. Not only case specific information from the literature or during numerous meetings, lectures and conferences, but also being able to take on an internship at the Ministry of Economic Affairs gained me the opportunity to learn and provided me a new experience. Therefore I would like to thank Rodrigo Pinto Scholtbach, who took on the role of supervisor at the Ministry of Economic Affairs. His knowledge and visions on the gas market and his enthusiasm, emphasised by his dynamic character, helped me a lot during this internship. I would like to express my gratitude to Rodrigo for providing me the internship opportunity at the Ministry and his enthusiastic interest in my thesis project and his constructive advice throughout the process. Also, I would like to thank Bert Roukens for his support, and the help of the division Energy Market, providing me the opportunity to get in contact with the network. I would like to thank all the interviewees for their time and effort, including Martin Schulz for helping me out with the theoretical framework. Energyboy Jan Willem de Vries, thank you for your insights and the good times we had during our internship at the division Energy Market.

    Moving on to the Erasmus University, I would like to thank Frank Boons, who joined me in this adventure. Although the writing process was not always easy, you’ve taught me some valuable lessons in life. Thank you for your advice and support during the process.

    Then, there are my thanks to a lot of people on the background; I took some time and this thesis kept me from our conversations, visits or beers, so thank you JC Kroet, Château Niveau, study friends and rugby mates. Matthijs, your constructive support came at the right moment in time. Mom, dad, Paul and Sophie without your support I wouldn’t have graduated at all!

Robert Zuurbier - Rotterdam, August 2010

Chapter 1 INTRODUCTION

    The Dutch gas market has been characterised by public private cooperation from the moment the Groningen gas field has been discovered in Slochteren in 1959. Dutch government and private oil companies joined their efforts in the ‘Gasgebouw’ for exploiting, producing and distributing gas throughout the Netherlands and beyond its borders. The ‘Gasgebouw’ is the name of the complex set of policies, agreements and partnerships between the Dutch government and the private sector, controlling the ownership of the Dutch gas supplies (Köper 2009).

    Now, five decades after the creation of the ‘Gasgebouw’ the outlook of the gas market has changed significantly due to changes in supply and demand and policy changes at both European and national level. However, public private cooperation in the Dutch gas market is still very relevant as public and private partners are both still very strong involved in the gas market in many roles.

    From the moment the Slochteren field was discovered in 1959, the Netherlands became an important gas exporter for the European gas market. Now, fifty years later, the Ministry of Economic Affairs is seizing the future opportunities for the Dutch gas market. On the one hand, the future supply from the Dutch gas fields will decline and there are concerns surrounding the security of supply from foreign suppliers, on the other hand there has been installed a gas infrastructure throughout the Netherlands, the Dutch gas sector involves many industries and knowledge centres and the Dutch economy depends on the gas revenues. Therefore, the question is how to maintain the position as important supplier of the European gas market. In order to provide gas to Dutch and foreign (industrial) consumers, and extend the position as gas exporter, the Ministry of Economic Affairs proposed the idea of creating a Dutch gas hub (Ministerie van Economische Zaken 2008a). The gas hub would include the import and export of gas, adding (trade) services and strategically use the Dutch gas supplies and gas capturing, while connecting the gas streams of Northern Europe, Germany (with its Russian pipeline connection), the gas pipeline connection to southern Europe via Belgium to France and Italy and the interconnector to Great Britain, (Ministerie van Economische Zaken 2009b). However, as the national gas production will decline, the gas portfolio should be widened. Here, Liquefied Natural Gas (LNG) could be a solution, as this gas could be shipped in liquefied form to the Netherlands and then be regasified in order for it to flow through the Dutch gas hub for Northwest Europe.

    The Ministry of Economic Affairs started to focus on the global LNG market, together with Dutch LNG related firms. It became apparent that these LNG related firms face difficulties when trying to contract LNG with LNG producing countries; the involvement of a government actor seems to be needed when contracting LNG. The Ministry of Economic Affairs realised it could play a role in the process of contracting and importing LNG; but how should this process of public private cooperation take place and what do the LNG related firms expect from the role of the Ministry of Economic Affairs?

    1.1 RESEARCH OBJECTIVE

    The objectives of this thesis are to explore and describe the cooperation between the Ministry of Economic Affairs and LNG related firms in order to contribute to improving the collaboration between those parties and with that, the overall process of importing LNG in the Netherlands. The process of cooperation between these public and private actors takes place in a certain way in order to combine interests and by doing so the cooperation targets specific countries by the combined efforts of the Ministry of Economic Affairs and the LNG related firms. The outcomes of the process of cooperation provide opportunities for the development of import of LNG, where both the roles of public and private

    actors play a role. These roles of the actors, the goals of the cooperation and the effects of the process of cooperation are the objects of this research. Within this cooperation context, this thesis provides an insight in the expectations of the LNG related firms regarding the cooperation and the role of the Ministry of Economic Affairs. The form of public private cooperation is at the core of this thesis and after analysing the process of cooperation and the management of expectations surrounding this process, recommendations will be made for the Ministry of Economic Affairs.

    First, an exploratory research will to be done in order to understand the specific cooperation between the Ministry of Economic Affairs and the LNG related firms, as Robson puts it: ‘[...] To find out what is

    happening, particularly in little-understood situations[...] to seek new insights [...]’, (Robson 2002, 59). Then, a description has to be provided ‘[to] portray an accurate profile of persons, events or situations.

    [This] requires extensive previous knowledge of the situation etc. to be researched or described, so that you know appropriate aspects on which to gather information [...]’, (Robson 2002, 59). For both exploratory and descriptive research a flexible research design could be used, as will be provided in Chapter 3. Finally, recommendations for the Ministry of Economic Affairs will be included in this thesis about the process of cooperating with firms in the matter of LNG imports.

    1.2 SCOPE OF THE RESEARCH

    This thesis will focus on the process of cooperation between public and private organisations. To be more specific, this thesis will scrutinize the cooperation between the division Energy Market of the Ministry of Economic Affairs and nine participating firms in order to generate the import of LNG from Algeria, Angola and Qatar. The process of cooperation in the three cases of Algeria, Angola and Qatar are the scope of this research, from the initiation of the cooperation, to the status of the situation when the interviews were conducted in May and June 2009.

    1.3 SCIENTIFIC RELEVANCE

    The subject of cooperation between public and private actors has been described and tested in the scientific literature, from both the private and public perspective. However, the scientific relevance of this research lies in the fact that although strategic cooperation has been researched, the specific form of the process of cooperation like the one described in this research has not been described yet. The specific characteristics of the process of cooperation in the cooperation between the Ministry of Economic Affairs and the LNG related firms is unique in its sort; this form of cooperation has not been described or analysed in the existing literature. Therefore, this research will analyse the process of cooperation described in the cases by using concepts of Easton’s system model and a model from Schulz et al. (2006), and adding variables taken from existing literature, making measurement of strategic cooperation possible. In doing so, this thesis tries to relate theoretical concepts to a practical case study. The model of Schulz et al. has been created to analyse a different phenomenon (committees), which is described in Chapter 2, but is now used to analyse a strategic cooperation. This research aims to use Schulz’s model for

    another research object and in this way increase the usability of Schulz’s model. In addition, the management of expectations is linked to the adjusted model of Schulz et al. by adding theory of Klijn and van Twist, (2007a).

    1.4 PRACTICAL RELEVANCE

    The cooperation between the Ministry of Economic Affairs and the LNG related firms is regarded as the best possible opportunity for the LNG related firms to contract LNG from LNG exporting countries. However, so far no LNG contracts have been signed. Therefore, the Ministry of Economic Affairs is looking for instruments and mechanisms to enhance the process cooperation and effectiveness of the cooperation; the recommendations of this thesis are relevant for the existing form of cooperation and can be of use when deciding on starting a new cooperation. The conclusions and recommendations, which are part of

    this research, are intended to be of practical relevance to the Ministry of Economic Affairs and the LNG related firms participating in the cooperation.

    1.5 RESEARCH QUESTIONS

    The topic of this research is process of cooperation and management of expectations throughout this process between the Ministry of Economic Affairs and LNG related firms. The research question is defined as:

    How can expectations be managed when applying Schulz’s model on the process of public private cooperation between the Ministry of Economic Affairs and LNG related firms in the case of import of LNG from Algeria, Angola and Qatar?

    In order to answer this research question, a number of sub questions are stated. By using theoretical concepts and making them measurable by adding variables in the conceptual framework, these sub questions can be answered:

    1. How could Schulz’s model be applied on the process of public private cooperation?

    a. Why do partners regard cooperation as needed?

    b. What are the characteristics of the cooperation?

    c. What are the procedures involved in the cooperation?

    d. What are the effects of the cooperation?

    2. How could expectations be managed in a public private cooperation?

    1.6 STRUCTURE OF THE THESIS

    In the following chapter of the thesis, an overview will be provided of the theoretical framework. The theoretical concepts will be explained and a model will be given, which will be used to analyse the case. Variables will be added to this model, in order to answer the sub questions. In chapter 3, the research design will be provided and the reliability and validity of the research will be scrutinised. Chapter 4 provides the policy context of the three cases, which are described in chapter 5. Then, in chapter 6, the case will be analysed using the conceptual framework; the research findings are stated in this chapter. The final recommendations are to be found in chapter 7.

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