Phasing-out of Groningen gas
On 22 May, an earthquake with a magnitude of 3.4 on the Richter scale occurred near Westerwijtwerd in the province of Groningen. This earthquake prompted the Dutch State Supervision of Mines (SodM) to issue stricter advice. From the perspective of safety in Groningen, SodM advises that no more than 12 billion m3 be extracted from the Groningen gas field during the upcoming 2019/2020 gas year (assuming average temperatures). A substantially higher volume of gas was extracted over the past several years. From a level of 35 billion m3 in the 2014/2015 gas year, the volume decreased to 20 billion m3 in the 2017/2018 gas year. In the current gas year, an extraction level of 14 billion m3 was already reached by the end of June. The Dutch ministry of Economic Affairs and Climate Policy asked GTS to investigate whether it would be possible to comply with SodM’s advice from the perspective of security of supply.
Advice from GTS
On 11 June, GTS subsequently advised the ministry on the measures needed in order to achieve an extraction level of 12 billion m3 during the upcoming gas year.
GTS proposes the following measures: increasing nitrogen use, which would allow us to make more pseudo-G gas, supplying Germany with pseudo-G gas, filling the Norg gas storage facility with pseudo-G gas instead of Groningen gas and, once only, lowering the level to which we fill the Norg gas storage facility.
Further research on security of supply
This prompted GTS to launch a study this year to investigate what resources are needed to be able to guarantee security of supply in the Netherlands and north-western Europe as a whole in the future. The key topics in this study are as follows:
- Is there enough supply capacity in Europe to transport gas to the Netherlands, given that the Netherlands is transforming from a gas exporter into a gas importer?
- Are there adequate capacity storage facilities available to be able to move the minimum continuous supply of, for example, Norwegian and Russian gas from the summer to the winter?
Maintaining security of supply during phase-out of Groningen gas extraction
In addition to the advice concerning the 2019/2020 gas year requested in 2019, the ministry of Economic Affairs and Climate Policy decided in 2018 that gas extraction from the Groningen field would be discontinued entirely as soon as possible. As a national network operator, GTS makes an important contribution to the security of supply in the Netherlands and north-western Europe, and will continue to do so in future. GTS’ role in this context, to ensure its tasks relating to transport, quality conversion and balancing are carried out, is becoming increasingly important. We are following two parallel routes to keep the security of supply as high as possible.
The first route is to make maximum use of quality conversion, in which nitrogen is mixed into imported gas to make it suitable for the market. The key projects to facilitate this are the construction of the Zuidbroek nitrogen plant and the expansion of the Wieringermeer mixing facility. Secondly, we are looking into how the demand for low-calorific or Groningen-gas (G-gas) gas can be reduced, for instance by having industries and power stations switch to using high-calorific gas or a sustainable alternative.
Construction of the Zuidbroek nitrogen plant
Drastic measures are required to accelerate the phase-out of natural gas extraction in Groningen. The most important measure (involving investment of approximately € 500 million) is the realisation of the new nitrogen plant in Zuidbroek, which can significantly increase the scope of quality conversion. After the new plant is put into operation, gas extraction in Groningen can be reduced by between 7 and 10 billion m3 per year. Current efforts are fully focused on making the site ready for construction. Actual construction work on the new nitrogen plant and mixing station will start this summer. The project is progressing in line with the scope and schedule and the plant is expected to be put into operation in the first quarter of 2022.
Expansion of the Wieringermeer mixing facility
Based on a study of the market, a nitrogen supplier indicated it still had 80,000 m3/hour of unused nitrogen capacity available. The supplier can provide this capacity in the short term and needs to build a new compressor for this purpose. To this end, GTS is currently expanding the mixing facility’s capacity from 230,000 m3/hour nitrogen (at present) to 310,000 m3/hour as of 1 October 2019. This is expected to be put into operation in January 2020.
Conversion of large industries
A legislative bill is currently being prepared to have customers with L gas consumption of more than 100 million m3 per year convert to H gas or a sustainable alternative. The transition would need to be completed by 1 October 2022 at the latest. The proposal is currently with the Council of State.
The bill also features a new statutory duty for GTS in relation to conversion (the task of ensuring connections). GTS is in consultation with 9 large customers about the measures needed and the specific schedule and is preparing the rest of the conversion. GTS highlighted the importance of this bill taking effect no later than 1 January 2020 and of customers reporting to GTS soon thereafter, by 1 February 2020, so that the conversion can be realised in good time.
Effect of the phase-out on import capacity
Analyses from Gasunie and ENTSOG show that as a result of the reduction in gas extraction from Groningen, extra H gas import capacity will be needed to be able to supply the north-western European G gas market with sufficient G gas (including pseudo-G gas). This H gas must come through pipelines from places like Norway and Russia and in liquid form (LNG) by ship from other parts of the world. GTS is in contact with the German TSOs and has asked that attention be devoted to taking these changes in the gas market into account in network planning activities.
From natural gas infrastructure to sustainable energy infrastructure
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. Coal-fired power stations will be phased out in Germany and the Netherlands. Natural gas therefore plays a key role in the energy transition.
The new Climate Agreement was presented at the end of June. In the agreement, energy infrastructure plays a key role in the transition and is therefore an important theme for all the tables involved in the Climate Agreement. Gasunie likes to show how the use of existing energy infrastructure in particular contributes to a successful energy transition and how we are shaping this in concrete terms with various projects and partners. We describe the results of this in the Business Development Results section.
At present, our network primarily transports natural gas. Approximately 40% of the energy supply in the Netherlands, and the EU as a whole, is expected to be made up of sustainably generated electricity by 2050. The other 60% will consist of green molecules such as hydrogen, green gas and heat. We have vast experience in the large-scale transport and storage of gases and in balancing supply and demand. We are using that knowledge and experience to accelerate the energy transition.
In order to achieve the climate goals reliably and affordably, close cooperation is required between the infrastructures for electricity, hydrogen, methane and heat. This enables us to compensate for the fluctuations in the production of solar and wind energy. Connecting the various energy networks with each other gives rise to new possibilities for transport and storage and maintains the reliability of the overall system. Together with TenneT, we published a first outlook to 2050 for the development of energy supply in the Netherlands and Germany. This energy system will use existing infrastructures wherever possible to reduce social costs.
Through Gasunie Deutschland, Gasunie is actively involved in merging the two market areas in Germany: Gaspool and Net Connect Germany. GTS is also following this development with interest and investigating what implications this could have for the TTF market area. Gasunie is a proponent of further integration of the gas market in north-western Europe, which could further reinforce the functioning of the market and the use of existing gas infrastructure. GTS is working to implement Virtual Interconnection Points and is collaborating with other TSOs in north-western Europe to map out the possibilities for further market integration.
Creating a future-proof organisation by improving our flexibility and agility
Partly because of the reduction in traditional natural gas transport and the use of risk-based asset management, our workload will decrease in the coming years. We therefore started a voluntary severance scheme at the end of 2018. 240 colleagues decided to make use of this scheme and left Gasunie during the first half of 2019. We are accommodating this contraction in our organisation, along with the growth of new activities, by organising our work more flexibly and further boosting our efficiency.
Appeal against 2017-2021 Method Decision
ACM adopted a new decision at the beginning of 2019, as a result of GTS’ successful appeal against the 2017-2021 Method Decision. In this new decision, ACM adjusted the amount of the Weighted Average Cost of Capital (WACC) and the Frontier Shift. These changes result in an increase in GTS’ permitted revenues and will be factored into the 2020 and 2021 rates.
2020 Rate Decision
In the second quarter of 2019, ACM adopted a Rate Decision for GTS’ rates in the year 2020. ACM made two changes in the Rate Decision with respect to the rates proposal submitted by GTS. Besides a correction of the 2020 inflation, ACM opted to spread the post-calculations over two years, so that € 16 million in post-calculations will be deferred to 2021. This deferral results in a more stable progression in rates and was requested by the market parties. GTS also explained the structure of the rates and changes in a number of sessions, to the satisfaction of the market.
Project Morgan (moet regulering gasnetwerken anders or does the regulation of the gas networks require modification)
During a stakeholder meeting with network operators and market parties, ACM shared the results of its scenario analyses on the future use of the networks and the expected trend in rates. Based on these scenario analyses, ACM will decide the best way to handle the possibly significant decrease in the use of the gas network in its regulation method.
Efficiency benchmark for the 2022-2026 Method Decision
The European benchmark study conducted by CEER (Council of European Energy Regulators) was continued in 2019. The final results and reports from this survey are expected in the third quarter. This will be followed by a national process in which the outcomes will be further analysed and interpreted. The insights from this national interpretation phase will serve as the basis for decisions on the use of the efficiency score in this Method Decision.
Return on Equity (ROE)
Together with the other German TSOs, Gasunie Deutschland started proceedings against the determination of the ROE for the 2018-2022 regulatory period. Germany’s Federal Court of Justice recently dismissed the objection, so the ROE adopted by the German regulator BundesNetzAgentur (BNetzA) will remain in force.
Amendment of the incentive regulation (AregV)
A bill in relation to the incentive regulation was published in Germany in October 2018. This bill will result in changes to the investment framework for TSOs (reduction of the cost reimbursement, and legal uncertainty). The objections to this filed by TSOs have been acknowledged and culminated in an amended (improved) bill. This amended bill has been passed. Investment measures requested prior to 31 December 2018 will still come under the old regime. The project for the further development of the AregV has started. This will result in individual adjustments, rather than fundamental discussions.
General Efficiency factor (X-gen)
The German regulator BundesNetzAgentur (BNetzA) made a final decision in February 2018 whereby the X-gen factor was set at 0.49% per year for the 2018-2022 regulatory period. Gasunie Deutschland appealed this decision. A similar case showed that the appeal has some likelihood of success.
NC TAR (Network Code on Harmonised Transmission Rate Structures for Gas)
Gasunie Deutschland will support the proposal of the stamp rate, as will many other market parties. GASCADE, GRTgaz Deutschland and Gazprom Export LLC filed an objection with the Düsseldorf Higher Regional Court. The court dismissed the request that the case be handled quickly. A ruling is expected in 2020.