Publication of 2017 annual results and start of market consultation on additional nitrogen measures
Increased use of nitrogen can reduce gas extraction at the Groningen gas field quickly and responsibly
New nitrogen plant ready in 2022
2017 annual figures: significant increase in use of nitrogen to create low-calorific gas
Security of supply and safety remain high in 2017
Net profit of € 259 million reported (€ 76 million increase compared to 2016)
€ 259 million dividend for the Dutch State
Gasunie Transport Services (GTS) has advised the Dutch Ministry of Economic Affairs and Climate on how gas extraction in Groningen can be reduced as quickly as possible to an initial figure of 12 billion m3 per year. GTS also indicated how Groningen production can be further reduced without jeopardising security of supply. This was shown in Gasunie's 2017 annual results, which were published today.
Additional nitrogen plant
One of the most important measures is the construction of a new nitrogen plant near Zuidbroek. A nitrogen plant is used to add nitrogen to the high-calorific gas sourced from the Netherlands and other countries, making the gas suitable for domestic household use. The planned nitrogen plant will enable an annual reduction of around 7 billion m3 of gas from Groningen (during a cold year). With this result, as soon as the plant comes into use early in 2022, it will be possible to cap production at 12 billion m3. This cap is feasible because, with the scaling down of exports over the coming years, the demand for low-calorific gas from Germany, France and Belgium will also decrease by 2 billion m3 per year. Gasunie will ensure that preparations for the nitrogen plant get fully underway and will be starting market consultations today. The Ministry of Economic Affairs and Climate will also be consulted on any changes to laws and regulations needed to enable construction of the nitrogen installation.
Further reduction of gas extraction
GTS also sees other ways of reducing gas extraction from the Groningen field. The purchase of additional nitrogen and the modification of existing facilities will together enable an additional reduction of 1 to 1.5 billion m3 of Groningen gas per year from mid-2020, as this will make it possible to step up the use of the existing nitrogen plants. Switching the Dutch industry over to high-calorific gas will also decrease the production of Groningen gas by 2.3 to 3.4 billion m3 per year. GTS is also investigating whether the gas storage facility in Norg can be converted to store the low-calorific gas produced by mixing high-calorific gas with nitrogen once the new nitrogen plant is up and running.
Together with the Ministry of Economic Affairs and Climate and an advisory group consisting of PBL Netherlands Environmental Assessment Agency and TNO, GTS has estimated the amount of Groningen gas that would be required in a cold year in the various proposed scenarios.
Use of renewable gases
A substantial contribution can be made to reducing the need for Groningen gas by increasing the supply of sustainable (renewable) gases (green gas, hydrogen, etc.). Gasunie encourages the use of renewable gases because these emit less CO2, which will help to accelerate the energy transition. By 2025, the annual consumption of Groningen gas could be reduced by around one billion m3 through the use of renewable gases. This would involve the use of green gas (produced through fermentation and gasification), and an accelerated roll-out of supercritical water gasification and fermentation solutions. In 2017, Gasunie built a demo gasification plant in Alkmaar in collaboration with SCW Systems, with the aim of scaling up this new technology for use at an industrial level as well.
Hydrogen is another candidate for replacing natural gas, and research in this area is in full swing. From around 2025, sustainable hydrogen (including hydrogen produced at offshore wind farms) could replace up to about 6 billion m3 of gas each year. Together with partners in the North Sea Wind Power Hub consortium, Gasunie is exploring the possibilities of combining large-scale wind projects in the North Sea with the production, storage and transport of sustainable energy in the form of hydrogen.
Improving energy efficiency by using better insulation is, of course, still necessary in order to quickly reduce energy consumption. The use of district heating grids and hybrid heat pumps can help reduce the demand for natural gas as well. Gasunie is a partner in the Zuid-Holland Heat Alliance that wants to build an enormous heating grid to serve the province of Zuid-Holland. This grid would provide heat (including residual heat) to 1 million households and a comparable part of the horticulture sector and industry. It has been calculated that this would produce annual savings of one billion m3 of Groningen gas.
2017 operating results
The role of natural gas in the energy mix will change, but in the short and medium term natural gas will continue to play an important role in the Netherlands and Europe, including as a substitute for coal. The 2017 annual report, which Gasunie is presenting today, states that the amount of natural gas transported (1,213 TWh, 124 billion m3) last year remained virtually the same as that in 2016 (1,236 TWh, 126 billion m3), with Gasunie achieving almost 100% security of supply throughout (there was only one brief disruption at a customer’s in 2017). Moreover, safety performance improved even more last year.
In 2017, to offset the decline in production of Groningen gas, Gasunie converted 11% more high-calorific gas than in 2016, making it suitable for use by domestic households and companies. Quality conversion through the addition of nitrogen has risen considerably since the decline in Groningen gas production, from 5.7 billion m3 in 2013 to some 25.8 billion m3 in 2017. This is equal to the amount of the entire domestic consumption of low-calorific gas.
2017 financial results
Gasunie reported solid results in 2017. Revenues decreased by € 307 million to € 1,241 million, which was mainly the result of a decline in GTS’ permitted revenues, regulatory settlements from previous years, and a downturn in capacity sales. This decline in revenues was offset by a decrease in expenses, mainly arising from lower impairments. As a result, the net profit reported increased by € 76 million compared with 2016, coming in at € 259 million in 2017.
Excluding impairments in 2016 and 2017, the normalised net profit decreased by € 151 million to € 370 million, mainly due to the aforementioned decrease in revenues. The effect of the decrease in revenues was partially limited by cost savings, lower finance expenses and a higher result on investment in associates. Based on these results, Gasunie will pay a dividend of € 259 million to its shareholder, the Dutch State.
Thanks to efficient operations, Gasunie Deutschland was able to achieve additional positive results during the 2013-2017 regulatory period. Over the past five years, Gasunie Deutschland has posted total net profit of € 464 million. The regulator’s ongoing tightening of the regulatory framework, based in part on the efficiency achieved, will lead to lower rates and lower results in the new regulatory period from 2018 onwards. Based on this information and in accordance with the applicable financial rules, an impairment of € 150 million on the German network was reported for 2017.
Gasunie expects a stable operating result for the coming years that will be in line with the normalised operating result for 2017.
2017 business developments: demand for imported gas increasing in Europe
The entire European gas market is evolving. The production of natural gas in Europe is on the decline, meaning that more gas needs to be imported. It will remain a challenge to bridge the gap between supply and demand. For this reason, Gasunie decided in 2017 to participate with other partners in the yet-to-be-built EUGAL pipeline in Germany. A decision was also made to facilitate reverse flow through BBL (the gas pipeline between the Netherlands and the United Kingdom) in 2019. By allowing the gas to flow in both directions, better use can be made of the link between TTF (the Dutch gas trading hub, which was again the leading hub in Europe in 2017) with NBP, the British gas trading hub. This move is expected to result in a significant increase in the trade between these two market areas. To create more import options and therefore further increase flexibility for the market in Germany, Gasunie and partners have launched a study on the development of a terminal for liquefied natural gas (LNG) near Hamburg.