Europe has opted to liberalise the energy market in order to increase the freedom of choice available to consumers and to promote competition. It is inherent in the operation of the free market that the role of commercial market operators like GasTerra should be limited with regard to the security of delivery. It is the Transition System Operators (TSOs) that are responsible for that. The gas users themselves are responsible for the security of supply; the role of GasTerra does not extend beyond the fulfilment of contracts.
Security of delivery
It goes without saying that GasTerra accepts its responsibility with regard to security of delivery by meeting agreed contracts at all times. In addition, we are giving effect to this by already responding now to an expected marked decline in production of low calorific gas from the Groningen Gas Field after 2020.
GasTerra further anticipates that market operators are, to a large extent, able to guarantee a reliable delivery. Globally, there is sufficient gas, and with LNG, the diversity as well as the flexibility of the supply has increased. Furthermore, a great deal has been done in Europe to stimulate cross-border trading. Agreements, inter alia about transmission, balancing and gas quality should remove trade barriers as much as possible. That increases the security of delivery. This is reflected in the valuation of reservoirs, which is low at this time. As a result, investments in reservoirs are currently not interesting, although these will be necessary in the longer term. GasTerra is of the opinion that price signals are the only accurate instrument for allowing market operators to make timely investments.
In the chain
We buy and sell gas and related services. In doing so, we have to deal with various national and international parties. Obviously with manufacturers, suppliers and customers, but also, for example, with transmission system operators for the transmission of the gas, market regulators and politicians and executives who are responsible for (monitoring of) legislation and regulations. Within the chain, the trading portion falls within GasTerra's responsibilities. In addition, we have the public duty to give effect to parts of the Gas Act. Although management of the chain is not formally a responsibility of GasTerra, we do try to exert influence in this area. In doing so, we focus primarily on the use of our product, because we consider it is exceedingly important that gas be used efficiently. In this context, we have supported several initiatives that promote the efficient use of gas. In addition, we assist our clients in solving energy issues. Upstream, GasTerra does business primarily with Dutch gas producers, who, inter alia, have to meet strict requirements with respect to the environmental and good employment practices. GasTerra stimulates the production of this Dutch gas by matching the contract conditions to the needs of producers wherever possible. In this, we give focused effect to our social responsibility. We will continue to do so in the transition period to a sustainable energy supply.
Europe has opted to liberalise the energy market. In this context, the gas users themselves have become responsible for the security of supply and the role of GasTerra in this is restricted to the fulfilment of contracts. Our stakeholders have indicated that they consider this an important issue for GasTerra. It goes without saying that GasTerra meets agreed contracts at all times. In order to be able to achieve this, amongst other things, we make use of accurate analysis of temperature data and demand. Based on the correlation, we estimate the expected consumption as well as the resources available in the areas of production, infrastructure and transmission. In doing this, we include the actual risks and always maintain a margin.
GasTerra is also transparent about the (im)possibilities of delivery. Likewise with regard to the anticipated marked decrease in L-gas production from the Groningen Gas Field after 2020.
Decrease in Low-calorific gas (L-gas) production
Gas from the Groningen gas field contains relatively high levels of nitrogen compared to gas from other fields. This results in Groningen gas having a lower calorific value (L-gas). When the Groningen gas field was discovered, all gas appliances in the Netherlands were made compatible for its use. Later, smaller natural gas fields were discovered containing gas with a higher calorific value – high-calorific gas (H-gas). In order to make this gas suitable for appliances designed for L-gas, nitrogen is added at special-purpose processing facilities. In parts of Germany, Belgium and France as well, L-gas from the Netherlands is used. There, since 1996, new appliances have been made compatible for use with both L-gas and H-gas.
After dozens of years of growing and stable production, the expectations are that the volume of production from the Groningen Gas Field will markedly decline after 2020. Even with the full use of the existing nitrogen plants, it is anticipated that not all existing consumers of L-gas can be provided for from 2020. That means that, over time, the existing consumers of L-gas will have to switch to H-gas. Research by the Energy Delta Gas Research Consortium (EDGaR) showed that conversion in the Netherlands will not become necessary until 2030. Since in the short term new appliances in the Netherlands must also be suitable for H-gas, in the run up to that time, most of the gas appliances will be suitable for it.
Conversion from L-gas to H-gas
The transition from L-gas to H-gas will therefore have to begin abroad. Because of the existing long-term contracts, this will take place first in Germany (2020) and afterwards in Belgium and France (from 2024). GasTerra views it as its responsibility to inform both customers and others who are directly involved in good time and give them guidance on how to prevent shortages of L-gas. Thus in 2013, GasTerra, GTS and the Ministry of Economic Affairs widely publicised this message to foreign customers, transmission system operators, government departments and regulators. Germany has meanwhile incorporated the start of the conversion plan into its Netzentwicklungsplan Gas and is now working on the assumption of a gradual reduction in L-gas from the Netherlands between 2020 and 2030. The message has reached Belgium and France as well, but given the ten-year planning horizon of the transmission system operators, conversion between 2024 and 2030 is not yet included in concrete and public plans. However, the transition to H-gas there is already being prepared.
The timing of the transition of the Dutch L-gas consumers to H-gas after 2030 will need to be further determined during the course of the 2020s. This is dependent on developments in the demand for natural gas (especially in the built environment), the remaining production from the Groningen Gas Field and the possibility of involving nitrogen plants.
Security of supply
As a result of the liberalisation, security of supply is the responsibility of the market. GasTerra contributes to this as a major market operator by strictly complying with its contractual commitments.
GasTerra procures gas from various parties in the Netherlands and abroad. The bulk of gas originates from the Groningen Gas Field and the small fields in the Netherlands (89% in 2013). The gas producers in the Netherlands have to meet strict requirements, inter alia with respect to the environment and good employment practices. GasTerra stimulates the production of this Dutch gas by matching the contract conditions to the needs of producers wherever possible. In addition, GasTerra procures gas specifically from Norway and Russia. The volume which GasTerra imports from these countries comprises only a small part of the export volume of the parties involved, Statoil and Gazprom. This obviously limits the influence of GasTerra. Nonetheless, our company seeks to promote the responsible extraction of this natural gas, with attention to the environment and safety. Thus GasTerra plays a facilitating role in the Project Delta Group, which aims to create opportunities for Dutch companies in the production of Russian natural gas.
The long-term contracts between producers and GasTerra are the basis of our actions. Consequently, the producers and GasTerra are constantly in dialogue to keep the reputation of the gas product high. Along with that, there is a mutual opportunity to discuss with each other activities being carried out by the other which could harm the reputation of gas.
The Gas Act
GasTerra stimulates the production of Dutch natural gas by giving effect to the Gas Act. The Gas Act states that GasTerra has a public duty to procure gas from the Netherlands' small gas fields, if so requested, at reasonable terms and at a payment in conformity with the market. This gives gas producers certainty about the sale of the gas and gives them an incentive to invest in these small fields. With the exchange of the ‘Buyer's Request Regime'' for the 'Seller's Nomination Regime', GasTerra expects to promote production from small fields even further.
Earthquakes in Groningen
Due to a number of earthquakes in 2012 and 2013 and the resulting damage and the uncertainty regarding the frequency and strength of earthquakes in the future, there has been much social unrest in the region in the past year. State Supervision of Mines (Staatstoezicht op de Mijnen or SodM) concluded in 2013 that the earthquake risk in the Groningen Gas Field is greater than previously thought. Last year, the Minister of Economic Affairs therefore had 14 studies carried out to gain more insight into the cause of earthquakes, the possible consequences, the possibilities of preventing or reducing the frequency and magnitude of earthquakes, the possibilities of preventing or reducing the damage caused by the earthquakes and the manner in which damage by earthquakes is dealt with.
GasTerra has participated in several of the Minister’s studies. The Minister has since published a decision. The Cabinet decision means that in 2014 and 2015, no more than 42.5 billion m3 of natural gas per annum may be extracted from the Groningen Gas Field and in 2016, another 40 billion m3. Furthermore, at five production sites in the heart of the earthquake zone, around Loppersum, extraction has to be reduced by 80 per cent.
GasTerra believes that, despite the announced production limitation, it is capable of meeting its contractual commitments. The company will do its utmost to contribute to the successful implementation of the Cabinet decision.
Shale gas is natural gas extracted from a dense type of rock, such as slate. Shale gas may well lead to an increase in Europe's natural gas reserves in the future. A lack of social acceptance stands in the way of extraction in the Netherlands in the short term. In September 2013, the Minister of Economic Affairs announced that for the time being, the government abandoned making a decision on conducting any test drilling. First he wishes to explore all possible locations for test drilling, in order to get more insight into the locations where potential test drilling could be carried out most responsibly. Given the potentially large economic value of shale gas, GasTerra is an advocate of thorough research into the possibilities of extracting shale gas. Social support and safe extraction techniques are preconditions for potential extraction.
Project Delta Group
GasTerra plays a facilitating role in the Project Delta Group (PDG) public-private partnership. The Dutch Ministry of Economic Affairs, Dutch knowledge institutes and the Dutch business world joined forces as part of this consortium. CEO Gertjan Lankhorst has a seat on the consortium on behalf of GasTerra. Inter alia, PDG shares 'best practices' in the field of sustainable gas extraction with the Russian natural gas company Gazprom. In doing this, PDG, and thus also GasTerra, are making a contribution to the responsible extraction of natural gas. In 2013, PDG also organised a trade mission to Russia. GasTerra was one of the parties that travelled along to Russia. During the mission, stable, long-term commercial relationships were discussed.
GasTerra's mission is to maximise the value of Dutch natural gas. In doing so, we not only look at the price, but we would also wish to maximise the value by using the gas as efficiently as possible. Inter alia, we give effect to this by supporting initiatives that contribute to the efficient use of gas. In addition, we support customers with sustainable initiatives.
Broadening and deepening knowledge about energy plays an important role in the efficient use of energy. It helps to make responsible choices about energy issues now and in the future, based on factual knowledge. The stakeholder analysis that GasTerra conducted in 2013 brought to the fore that stakeholders would like to see GasTerra play a significant role in spreading knowledge. We give this effect by supporting such initiatives in the field of knowledge transfer such as the Energy Academy Europe, which runs educational courses in energy at vocational college and university level. Furthermore, efficient, innovative energy technologies can contribute to a more efficient use of natural gas. With knowledge, projects and financial support, GasTerra contributes towards the development and introduction of these technologies.
GasTerra supports industrial customers in improving their energy efficiency, reducing their emission levels and making their production processes more sustainable through projects in the context of the Environmental Plan for Industry (EPI). In addition, GasTerra helps customers wishing to use sustainable energy by developing products that fit in with the customer's demand for energy in conjunction with sustainable production.