Gas infrastructure helps accelerate energy transition
Two memorable events in the first months of 2018 accelerated the start of a changing role for natural gas in the Netherlands. The earthquake near Zeerijp on 8 January prompted a fundamental reconsideration of natural gas extraction in Groningen. The government then launched a new Climate Agreement on 23 February 2018. This agreement is a first move towards achieving the agreed reduction in greenhouse gas emissions in the Netherlands but is still missing the cohesion and financial underpinning needed to arrive at a broadly-supported systematic approach to this problem.
Support in reducing Groningen gas extraction
Through our subsidiary Gasunie Transport Services (GTS), we are making every possible effort to help reduce gas extraction in Groningen. Since October, GTS’ quality conversion job has been expanded with the amendment of the Dutch Gas Act in relation to minimising gas extraction from Groningen. A number of analyses and studies have been conducted in this context. In addition, GTS advised the minister of Economic Affairs and Climate on how gas extraction in Groningen could be reduced as quickly as possible while still guaranteeing security of supply, initially to 12 billion m3 per year, and subsequently being able to end gas extraction there entirely.
As a result, natural gas from other sources will have to replace Groningen gas.
Domestic households and the majority of businesses in the Netherlands use low-calorific gas, the type of gas that comes from Groningen. Mixing with nitrogen can make the natural gas from other sources suitable for replacing Groningen gas. Thanks to the gas roundabout, the Netherlands can get this gas from abroad, either through pipelines, or by ship in the form of liquefied natural gas (LNG). An important measure is the construction of a new nitrogen installation near Zuidbroek. Initial construction work started in the fourth quarter of 2018 and we aim to put the installation into operation at the beginning of 2022. Once the installation has been commissioned at the start of 2022, production from the Groningen gas field can be reduced by approximately 7 billion m3, meaning that the Ministry's objective of capping Groningen production at 12 billion m3 can be achieved as early as 2022. Another measure is GTS’ procurement of extra nitrogen. In November, GTS updated the Ministry on progress with this and other measures. In order to fulfil the timetable, the nine largest users need to be weaned off low-calorific gas before October 2022. Since October, GTS’ quality conversion job has been expanded with the amendment of the Dutch Gas Act in relation to minimising gas extraction from Groningen.
During various ‘Climate Tables’ with the business sector, social organisations and public authorities, agreements were made and worked out in concrete programmes. We also contributed actively to this. We introduced our vision and proposals at the ‘Electricity Table’ and at several sub-tables, such as those for industry, system integration, sustainable heating and hydrogen. During the first months of 2019, the figures in the draft Climate Agreement published at the end of 2018 will be calculated to evaluate the feasibility both in terms of costs and CO2 reduction.
If we want to achieve the Paris objectives, the energy transition will have to be implemented as quickly as possible. It is crucial for people to realise that the choices we make in an effort to achieve the objectives for 2030 must also contribute to achieving the targets for 2050. The transition must not only result in the generation and use of more sustainable energy, it must also continue to ensure an affordable and reliable energy supply. This requires a flexible system in which energy transport and storage are very important in offsetting the mismatch between demand and supply in terms of time, location and energy type. One of the conclusions in the Dutch draft Climate Agreement is that energy infrastructure plays a key role. The more we make use of the existing infrastructure, the faster the energy transition can take place and the better the costs of this can be managed. By integrating the energy systems for electricity, gas, heating and, in future, hydrogen, we also create new solutions.
Together with TenneT, we compiled the 2050 Infrastructure Outlook to show what the energy system of the future should look like. Since energy is by definition a cross-border issue, we compiled this Outlook for both the Netherlands and Germany. Close collaboration between gas and electricity infrastructures is needed in order to guarantee the reliability of the energy system. What is more, we can only compensate for increasing fluctuations in the production of solar and wind energy if we integrate the gas and electricity systems to a greater extent.
During various ‘Climate Round Tables’, the business sector, social organisations and public authorities made agreements and worked these out in concrete programmes. We also contributed actively to this. We introduced our vision and proposals at the ‘Electricity Table’ and at several sub-tables, such as those for industry, system integration, sustainable heating and hydrogen. During the first months of 2019, the figures in the draft Climate Agreement published at the end of 2018 will be calculated to evaluate the feasibility both in terms of costs and CO2 reduction.
From natural gas to renewable gases
Gas still needed
With today’s insights, natural gas is expected to still play an important role in the transition phase for decades to come. Replacing more pollutant fossil fuels such as oil and coal with natural gas immediately produces climate gains. Gas-fired power stations emit approximately 50% less CO2 than coal-fired power stations. For the transport sector, liquefied natural gas (LNG) is a cleaner alternative. We are participating in the proposed construction of an LNG terminal near Hamburg. A new terminal can contribute strategically to the diversification of the energy supply in Germany, and therefore also in the Netherlands and other western European countries. Natural gas is a 50% less pollutant alternative to coal (especially brown coal), which, like nuclear energy, is being phased out in Germany. Natural gas therefore plays a key role in the energy transition.
The use of natural gas will indeed decrease as we approach 2050, but gas will remain important. This will increasingly be renewable gas. The EU has calculated that by 2050, a maximum of 40% of our energy supply can consist of sustainable electricity (electrons), double the current electricity consumption. That means that 60% will still have to be available in the form of sustainable molecules. We are happy to use our knowledge, experience and infrastructure to transport and store these molecules. This requires, among other things, new knowledge and the development and upscaling of new technologies, which is why we are participating in a number of projects and testing grounds in the areas of green gas, CCUS and hydrogen, with the aim of helping reduce CO2 emissions. We are also involved in developing large-scale heat grids to start providing heat to some industry and buildings.
Hydrogen will play an important role in the new energy supply. We have plans to have a hydrogen network ready by 2030, which will link up the five large industrial clusters in the Netherlands and will also have a connection with Germany. This hydrogen backbone can largely be realised using existing natural gas pipelines that will be freed up. At the end of 2018, we put the first former natural gas pipeline into use as a hydrogen pipeline in Zeeland.
2018 also saw our subsidiary HyStock start work on the realisation of the first electrolyser in the Netherlands with capacity of 1 MW, near Zuidwending in Groningen. On a small scale, we are starting to use sustainably produced hydrogen as a fuel for mobility and raw material for industry. In the future, we want to store green hydrogen in caverns here. Enabling the large-scale development of hydrogen requires various parties in this chain to work together. For instance, we are currently working on concrete plans to scale up electrolysis capacity in the Netherlands and Germany. together with Engie and Nouryon in the northern Netherlands and TenneT and Thyssengas in Germany.
The discussion on the use of green gas took off with some difficulty. It was focused mainly on the question of whether sufficient biomass is available. The Climate Tables now consider green gas a serious alternative. A number of Dutch studies have shown substantial potential for green gas. One billion m3 can be available in 2023 and 3 billion m3 in 2030. One billion m3 could heat approximately 2 million domestic households, in combination with a hybrid heat pump.
Together with simple insulation, this could enable homes with a gas connection to be made CO2-neutral at a relatively low cost. In 2018, we started on the construction of the first green gas booster together with Enexis. This kind of booster raises the pressure of the gas, allowing green gas from the regional network to be fed into the national network.
This enables us to connect the large regional supply with the national demand for green gas. Innovative technologies are needed to further increase the production of green gas. Together with SCW, we are building a demo installation in Alkmaar where wet biomass like manure and sewage sludge can be gasified into green gas and hydrogen. We are realising the installations and related pipelines. Three such plants are expected to be able to produce no less than 500 million m3 of green gas in 2023.
Gasunie in transition
As a company, we are preparing ourselves for a new role in the CO2-neutral energy supply of the future. We expect our efforts will make our organisation even more flexible and agile. By working on new projects, we are taking decisive steps forward in relation to the energy transition. These steps already require quite a bit of effort, but will not yet result in any sizeable new activities in constructing, operating or maintaining systems in the next few years. At the same time, we want to ensure our gas transport is as efficient as possible. Since 2016, we have further updated our policy on managing and maintaining our infrastructure. It is now risk-based, whereby we focus on achieving our safety and reliability targets with the most efficient use of our resources possible. This also applies to our programme for renovating and replacing installations and pipeline components. Digitalisation and robotisation will also change how tasks and jobs are performed. The result of these developments is that we will be able to do our work with fewer people in the years to come.
We have already been in talks with the Works Council, trade unions and employees for several years on the sustainable employability of our own employees and increasing the extent to which they are in charge of that. At the same time, we see, as described above, that the decrease in work is occurring more quickly than expected. We expect that we will need fewer permanent employees by 2023 (up to 300 fewer employees). We have agreed with the trade unions and Works Council that we want to shape Gasunie’s transition up to the end of 2019 without compulsory redundancies. Partly because of this, we set up a voluntary severance scheme for employees who have been with the company for more than ten years and opened this up to a maximum of 15% of employees on 1 December 2018.
The maximum number of participants - 240 - was reached at the end of January 2019. Many of these colleagues will be leaving Gasunie during the first quarter of 2019.
We also gave all employees the possibility of having a few employee benefit schemes bought out. This was aimed at increasing employee mobility. Ultimately, 95% of those who were offered a possibility opted for the buyout.
In 2018, we were able to achieve almost 100% transport security. One brief disruption occurred. The quantity of gas we transported for our customers through our Dutch and German gas networks was 6.3% lower than in 2017. To offset the decline in production of Groningen gas, we converted a record quantity of high-calorific gas in 2018 to make it suitable for use by domestic households and companies, among other ways by mixing it with nitrogen. We saw an increase of 12%, from 25.8 billion m3 in 2017 to 28.9 billion m3 in 2018. Unfortunately, we were unable in 2018 to continue the trend of improved safety performance of the past several years. Our safety results worsened this year to some extent, primarily due to an increase in incidents outside the primary process. This was evident, for instance, in the increase in the number of reportable incidents per million hours worked.
The result after taxation increased by € 68 million compared to last year. This increase in the result is largely due to a change in the corporate income tax rate for 2020 and 2021 (€ 75 million). Normalised, i.e. excluding impairments in 2017, the voluntary severance scheme and buyout of a number of employee benefits in 2018 and the change in the tax rate, the result after taxation decreased by € 57 million.
This lower result is largely due to higher energy costs (mainly nitrogen) for gas transport (€ 22 million) and the provision for bad debts (€ 16 million).
Gas trade on the TTF
After a decrease in 2017, we once again saw an increase in the European gas trade in 2018. The Dutch virtual gas trading platform, TTF (Title Transfer Facility), contributed significantly to this and booked record volumes of 27,170 TWh. In 2018, 57% of European gas trading took place on TTF. TTF therefore maintains its position as the largest and most liquid ‘hub’ in Europe. The liquidity of the north-western European gas market is increasingly important to the Netherlands’ ability to offset the reduction in Groningen gas extraction with gas from other countries. In order to further strengthen this position, we are currently studying the possibilities of market integration in north-western Europe.
Changes on the Supervisory Board
On 6 July 2018, Mr Ate Visser joined our Supervisory Board as the successor to Mr Jean Vermeire. As of March 2019, Ms Jolanda Poots-Bijl reaches the end of her second term and will resign. We are very grateful to her for her expert supervision and advice over the past years.
Word of thanks
The dedication of our employees is indispensable in performing our activities and achieving our goals. Thanks to them, we were able to continue to realise safe and reliable gas transport in 2018 and take new steps in creating networks for increasing sustainability. We would like to thank all our colleagues for their contribution in 2018. We said farewell to 240 colleagues during the first quarter of 2019. This is a special situation for all of us. We wish the departing employees every success in their career outside of Gasunie and express our utmost confidence in the colleagues who will be staying on with us to future-proof the organisation.
Finally, our customers and partners also deserve thanks. We look forward to continuing the pleasant and productive cooperation in the years to come.
Groningen, 26 February 2019
Bart Jan Hoevers