Gaz de France Case Solution
Q: 1) Examine GDF's growth and development between the early 1950s and mid-1980s.
On April 1946, Gaz de France (GDF)was formed under the act of nationalizing the gas and electricity industry in France. GDF was chartered to produce, distribute, transport, import, and export gas. Over the period, GDF primarily became a buyer and distributer of natural gas in France. While the nationalization of French gas industry, gas was manufactured from coal in small plants owned by Five hundred utilities spread throughout France. However, the gas was locally distributed within a range that rarely exceeded 30 kilometers.
On the other hand, GDF was first attempted to modernize and concentrate on gas production through building several large plants. In doing so, the pipeline of 300-kilometer gas transmission was built in 1954 to supply Paris with gas manufactured in coke oven plants in Lorraine and Saarland. In the same manner, liquefied petroleum gases were introduced to supplement coal gas.
Furthermore, the discovery of a substantial natural gas field in eastern French Pyrenees intensely changed the situation before the end of the decade. In 1957,the enterprise state was commissioned to produce this gas for GDF. Over the period of four years, GDF set down 4,000 kilometers of pipelines to transport this gas from the production sites and supply Britain, mid-eastern France, and Paris area. In addition to this, GDF was supplied approximately half of France with natural gas.
In a similar manner, GDF predicated that, the production from Lacq and other domestic fields could not keep up to match with the growing demand for natural gas. GDF substantially began what was to become a substantial program of gas importation.
Since 1950, the importance of the natural gas had substantially increased as a percent change of total energy demand. However, the share of natural gas in world primary energy consumption (excluding electricity) around doubled from 10 percent in 1950 to almost 20 percent in 1984 while the share of coal decreased 50 percent and that of petroleum increased by 150 percent. Moreover, the growth of natural gas consumption in France was even more significant during this period, increasing over thirtyfold from 0.4 percent to 12.3 percent of total primary energy consumption. However, the petroleum usage increased from 17 percent to 45.3 percent, and coal usage decreased substantially from 75 percent to 13.2 percent.
As natural gas became popular in France, the fluctuation in demand relative to constant supplies created a storage problem. However, in France, for instance, gas demand in January was typically three times larger than that in August. It leads to additional 6 million cubic meters would need to be supplied all over France when the outdoor temperature decreased by one-degree centigrade. The primary storage vessel was transported through the pipelines which comprised large quantities of gas at high pressures that could act as a buffer against sudden increases in demand. Although the substantial underground storage was also used by hollowing out cavities in salt beds and sand. In 1986, France had developed thirteen natural gas underground storage sites capable of holding up to 72.8 billion kWh (kilowatt hours).
In the early 1980s, GDF had substantial borrowing needs, M. Reboul (director of legal and finance at Gaz de France) required to initiate a program of innovative and opportunistic liability management. However, the domestic market of French franc debt was relatively small, GDF intensely to turn to the international markets. The substantial off-shore and non-French borrowings were also encouraged by the government to help ease balance of payment pressure and also this way the economy won’t be affected.
Q: 2) As of 1986, what are the primary economic and non-economic variables determining the future profitability operations?
In the early 1980s, France and GDF faced difficult times. However, the country economy condition was going down, and thegovernment faced large budget deficits and trade deficits led to high-interest rates and inflation. In 1981, after the election of the socialist M. Francois Mitterrand became president. After he had been elected as president, France nationalized six big industrial corporations and sixty-six banks. After the nationalization of theinstitution, official reserves were drained as the balance of payments unfavorable. In these problems, GDF was not able to allow itself to increase its prices to cover higher costs. Consequently, it had incurred substantial losses for several years running...................................
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