Economic value creation
Economic value creation
By economic value creation we mean adding measurable financial value to society and our operations. We create this value through and during the execution of our natural gas infrastructure core tasks.
Market parties contract capacity in our gas networks and use our services like gas storage, contract trading and certification. While managing our infrastructure, financial value is created for suppliers, financiers and our shareholder. In addition, the company is worth more because we invest responsibly and carry out maintenance, minimise costs and risks, improve our business processes and accumulate knowledge.
GTS figures
GTS transported 389 TWh of natural gas in the first half of 2022, which is 15% less than the 459 TWh transported in the first half of 2021. Exit transport in the H-gas network and the G-gas network to industries, power stations, and regional transmission system operators was down by approximately 24% in total. Transport volumes were low because of the higher-than-normal temperatures, the high gas prices, the Ukraine crisis, and the conversion of the G-gas market outside the Netherlands. The drop in demand on the consumer side is not reflected in transport figures on a one-on-one basis because transport volumes to storage facilities and exports to Germany were up. Exports to Germany peaked in June.
GTS blended 190 TWh of high-calorific gas (H-gas) with nitrogen to produce low-calorific gas (Groningen-quality gas, or G-gas) in the first half-year of 2022. This is 6% less than in the first half-year of 2021 (201 TWh). The amount of nitrogen used for conversion increased by 10% from 1.8 bcm to 2.0 bcm. *
* There are two reasons behind this increase in the amount of nitrogen used for conversion. H-gas has to be reduced to a lower Wobbe index, i.e. that of G-gas. There are two ways of doing that. On the one hand, it can be done by blending in nitrogen and on the other through ‘natural blending,’ which is to blend H-gas into G-gas until you get the maximum G-gas Wobbe index. Since there was less demand for G-gas for exports, the natural blending option was not as readily available to GTS, and so they had to use more nitrogen. And given that the Wobbe index of the H-gas also happened to be higher than usual over the past months, the conversion process required greater volumes of nitrogen to reduce the H-gas quality to a G-gas Wobbe index.
In the period from January to the end of May 2022, market parties traded a total of 18,487 TWh of gas on the TTF, around 9% less than the 20,338 TWh traded over the same period in 2021. Gasunie’s TTF natural gas exchange continued to be Europe’s largest hub by far. Over the first months, TTF’s market share remained steady at approximately 78% (compared to 77% in 2021), confirming the importance of a liquid hub for a properly functioning gas market.
GUD figures
Over the first six months of the year, GUD transported 184 TWh of natural gas, up 38% on the 133 TWh transported over the first half of 2021. This increase in volume came on the back of a 66 TWh rise in gas supplies from Norway, a 5 TWh rise in gas supplies from the Netherlands, and a 7 TWh drop in gas supplies from Russia. The remainder of the mutation came as a result of changes in the direction of flow of natural gas across the whole THE market area since October last year.
GUD is receiving large numbers of applications for new connections, including for the connection of permanent and temporary LNG plants. As Germany is switching to natural gas, there is still great scope for carbon emission reduction ahead of the switch to green molecules.
EemsEnergyTerminal
The most important step that Gasunie has taken since the Russian invasion of Ukraine to facilitate the supply of natural gas was to deploy two LNG FSRUs (floating storage and regasification units). These units will be moored at Eemshaven and operated by a newly founded wholly-owned Gasunie subsidiary called EemsEnergyTerminal. The FSRUs will be used to store and regasify LNG that is shipped in from overseas by large tanker ships, following which the natural gas is fed into GTS’s natural gas grid. We are also considering building a permanent LNG terminal at Eemshaven, one that we could repurpose for green hydrogen in the future.
Given the threat of Russian gas imports being reduced drastically or cut off altogether, it is crucial that we have these floating LNG plants operational this winter. The FSRUs have been chartered for a period of five years. GTS has permission to recover the costs involved in connecting them to the GTS network through their tariffs, provided that we get approval for the addendum to the investment plan. Any other costs will be paid by EemsEnergyTerminal customers.
Gate terminal expansion
Besides Eemshaven, the existing Gate terminal at Rotterdam’s Maasvlakte industrial area will also be optimised to increase LNG regasification capacity. Eemshaven and Rotterdam together will effectively double the Netherlands’ LNG capacity for the coming winter period. In addition, Gate will be expanding the number of loading docks for the transfer of LNG onto lorries from three to five. This way, Gate will be able to absorb rising demand in this market segment in a safe and reliable way.
More revenue from auctions
Volatile market conditions have driven up revenue from the auction of capacity on GTS’s and GUD’s respective entry and exit networks, which has a positive, albeit temporary, effect on both these subsidiaries’ operating result. Given that both these network operators’ income is regulated, the surplus income will be returned to customers over the following years.
LNG terminals in Germany
Current geopolitical developments have put renewed impetus behind Gasunie’s plans for the construction of German LNG, a permanent LNG import terminal in Brunsbüttel in the state of Schleswig-Holstein. Gasunie has signed a declaration of intent with Kreditanstalt für Wiederaufbau (KfW, on behalf of the German government) and RWE to pave the way for the building of this energy terminal. Gasunie’s intention is to start building work on the terminal this year, which will in the future also be adapted so that it can handle green and other hydrogen imports. This terminal will make it possible to supply natural gas to regions of Germany that are not connected to the gas pipeline network. Gasunie is the envisioned operator of the terminal.
Besides Gasunie, various other market parties have plans for the construction of a permanent LNG terminal in Stade and for four temporary floating LNG terminals that will be moored in Brunsbüttel, Wilhelmshaven and/or Stade. All these towns are within GUD’s network area and GUD will connect these plants to its network. Given that this is a statutory duty of GUD’s, GUD can pass the investment costs involved on to its customers by raising its tariffs. Gasunie has made the investment decision for the laying of two connection pipelines of 3km and 55km for the Brunsbüttel FSRU project and plans to take them into use in late 2022 and in 2023 respectively.
Nord Stream
Gasunie owns a 9% stake in the Nord Stream pipeline that has been operational since 2012 and transports Russian gas to Germany. Nord Stream is a Swiss company. The majority of shares (51%) are held by the Russian state-owned company Gazprom. The remaining shares are owned by the Western European energy companies Wintershall Dea (15.5%), E.ON (15.5%) and Engie (9%). The sanctions imposed on Russian and Russia’s response to these sanctions are having an effect on the operation of Nord Stream. Nord Stream’s board has, therefore, decided to suspend its annual dividend payment to shareholders.
Gazprom Export, as shipper, has booked the entire capacity in Nord Stream. Thus far, Gazprom has always fulfilled its payment obligations to Nord Stream. If that were to change, Nord Stream may end up with an income deficit that would impede it from covering its operating expenses. Gasunie measures its interest in Nord Stream at fair value, which is based on an estimate of future cash flows from Nord Stream, offset against the discount rate based on the associate’s risk profile. As of July 2022, we will measure our interest in Nord Stream at € 240.3 million, which boils down to a € 267.8 drop on year-end 2021. This change in fair value does not affect the profit and loss account, as it is taken directly to Gasunie’s equity. For further information, please refer to the Further notes to the condensed consolidated financial statements.
Any future sanctions impeding banks from maintaining their financing of Nord Stream may lead to Nord Stream having to repay its existing loans with immediate effect. If that were to happen, Nord Stream might not have the means to repay such loans and end up in financial distress. While Gasunie is a Nord Stream shareholder, Gasunie cannot be obliged to pay any additional amounts and has - as security for the banks - pledged only its shares in Nord Streams. As a result, Gasunie’s financial risk in the event of a Nord Stream bankruptcy would be limited to its shares in Nord Stream.
High energy costs
Like many other companies, Gasunie is facing steep energy price rises. Business units such as BBL and EnergyStock can pass most of these costs on to their customers. GTS was able to do the same in 2021, albeit not for all their costs. The tariff decision by the Netherlands Authority for Consumers and Markets (ACM) for GTS in 2023 increases the average total tariff for 2023 by 19% *, partly on the back of the fact that GTS is able to offset high energy costs incurred in 2021 in their future tariffs.
* Under the 2016-2021 methodology decision [Methodebesluit 2016-2021], GTS was still allowed to offset all energy costs incurred as part of quality conversion activities through its future tariffs.
The current regulatory period allows for the offsetting of energy costs in future tariffs only to a very limited degree. Under the current methodology decision for GTS (2022-2026), the energy costs for gas transmission cannot be offset in future tariffs at all and it is only allowed to a limited degree for the energy costs involved in the quality conversion, i.e. converting high-calorific gas from outside the Netherlands to Groningen-quality gas by adding nitrogen. Only volume changes for quality conversion can be offset. The price risk involved in the electricity needed for this is borne entirely by GTS. GTS has lodged an appeal against this change.
The steep rise in energy prices has pushed up the costs of quality conversion and gas transport equally steeply. GTS wants to be able to fully offset energy volume and price changes that GTS has no influence over. In Germany, regulations do allow GUD to offset these costs in future tariffs in full.
New Vertogas platform
Vertogas switched IT platforms in March. The new platform supports the full green gas certification process – from production to billing – and is more user-friendly than its predecessor. Every month, Vertogas issues Guarantees of Origin (GoOs) based on measured volumes of green gas produced. These GoOs can subsequently be traded via the trading modules of this new IT platform.
Sustainability-linked bond
Gasunie issued a bond loan in June that raised € 500 million in the capital market. This loan was subsequently actually taken up on 11 July. The bond issue was needed because one of our older bonds was set to expire. Like the previous bond, the new bond is a sustainability-linked bond. For this new bond loan, we have set two targets that have to be hit by 31 December 2030. The first target is specific to the gas transmission sector as it entails reducing methane emissions by approximately 50% compared to 2020. We have already brought these emissions down by 24% over the 2016-2020 period. The second target relates to the CO2e emissions under Gasunie’s own control, which it must reduce by 30% by 2030. The sustainability targets could result in a coupon increase of 0.125% if Gasunie has not achieved one target by 31 December 2030, and of 0.25% if we have failed to achieve either target.
