Gasunie: Crossing Borders in Energy
The Netherlands’ transmission system operator Gasunie is still a bit difficult to pronounce for non-Dutch speakers. But for those that knew the state-run company a decade ago, it might be virtually unrecognizable.
One individual responsible for the change is the TSO’s CEO and Chairman of the Executive Board, Paul van Gelder, who has great experience with change management, notably at BP and Taqa. No doubt his previous life as a Dutch naval officer has also helped him steer such change.
At the helm of Gasunie since 2010, Mr. van Gelder said he was a strong believer in TSOs playing an integrating and integral role in the entire energy discussion in Europe.
“They should not limit themselves to regulated activities in gas transport, but should act more as integrators in the debate on the energy market,” he explained. “That’s why we changed the strategy of Gasunie back in 2005, so we’re not only active in the regulated area of gas transport, but also in non-regulated activities like gas storage, an interconnector between the Netherlands and the UK, the LNG terminal, Gate, and of course Nord Stream.
“We’re working on our strategy of becoming an integrator to enhance security of supply, by integrating several supply sources of gas, LNG, storages, pipeline gas – but also being an integrator when it comes to the energy mix and helping intensify, for example, the development of wind and solar by providing flexibility in contracts. We’re also looking at new concepts like power-to-gas, in which you turn a surplus of electricity, for example when there’s an excess of wind power, into hydrogen, which we blend into the natural gas pipeline system.”
Gasunie, he explained, was an integrated company just over a decade ago, in 2000; it became unbundled in 2005, initiated projects up to 2010 and since then it’s been completely changing its focus, now playing that integrating role in the energy business.
“This also entails placing more focus on efficiency, in operations, and cost efficiency in order to demonstrate to society that we are investing in the right way, that we’re developing new concepts like smart capacity management in order to avoid investments that could become stranded assets,” stated Mr. van Gelder.
“So we’re doing a lot within Gasunie and I’m very proud.”
He explained that the Dutch TSO was the first cross-border gas infrastructure company and had received the European Gas Award for best European TSO last year.
“That was mainly because we were able to really integrate the Netherlands’ and German markets with linked products. They provide new services to shippers to use only one company (for example Gasunie) to transport gas over major, long, extended routes, thereby reducing bureaucratic burdens. Another example: at the Flame conference in Amsterdam last month, a group of 16 TSOs including GTS and Gasunie Deutschland signed a Memorandum of Understanding for the auctioning of bundled transport capacity between the gas transport networks of five different European countries.
“That’s a couple of ways in which we’ve contributed to European integration, but we also took the decision last year to further strengthen the Netherlands’ network, the cross-border capacity between the Netherlands and Germany, and also cross-border capacity between Germany and Denmark,” he said.
Mr. van Gelder added: “As you know, Denmark is really moving towards a green energy mix, a sustainable energy mix with a firm role for wind energy, but they need the back-up. And even though the government has presented a plan that they want to phase out all fossil fuels by 2030, in reality they need more natural gas to back up their energy system and they are developing a very good sustainable energy mix in Denmark, in which natural gas plays a very strong role.”
He said Gasunie was developing many new projects that allowed more gas to stream from the German market into Denmark.
“In Germany itself, we are extending our pipelines – we’re participating in the NEL project, which is an extension of Nord Stream of which we are a partner: 9%.
“So by participating in several projects at the same time, and by investing in the networks that we have, especially at the borders of those networks, we are contributing to integration of the European market.”
Gasunie had also been in the process of implementing its “Gas Roundabout Philosophy,” which it developed in 2006 in line with the official energy policy of the Dutch Ministry for Economic Affairs.
“We still have it in place,” said van Gelder. “We’ve made some upgrades and changes to it, but the basic concept behind the Gas Roundabout philosophy is that we want to turn the Netherlands into the natural gas hub for northwest Europe through the creation of a roundabout with ‘drive-on’ and ‘drive-off’ routes. An example of a drive-on would be the Gate Terminal, and Nord Stream is as well. The drive-offs are the connections that we are developing with gas-fired power plants and gas storages.
“So you have supply components, which form part of this roundabout, and you have these assets that are linked to the roundabout: gas storages and gas-fired power plants and distribution networks. That’s the concept. It’s a strategy that has been very successful so far.”
In that context, Mr. van Gelder said the Gate Terminal Project of which Gasunie is a stakeholder, was a very important project for several reasons.
“First of all, in the development phase we gained a lot of experience in working together with a partner like Royal Vopak, which is a listed company on the Amsterdam stock exchange. So that was quite a learning experience,” he recalled.
“The project was very well managed, we kept within budget and within the planning – even throughout this economic/financial crisis. So it was a very valuable project for us and the first that really brought us into the LNG world. That means, with Gate we’re now part of this development of natural gas as a global commodity – that’s very exciting.
“Secondly, it’s a new supply for natural gas for the Netherlands. Of course, we’re still a net exporting country of natural gas, but on the path towards a sustainable future for natural gas, and this is very important, to have more supply routes coming towards our country. So not only pipeline gas coming from Russia, internal production coming from the North Sea and the Groningen Field, but also LNG. Then we have the option to bring in LNG,” explained van Gelder.
“Thirdly, if you look at the use of the Gate Terminal, you see the effects of Fukushima, but that’s a whole dynamic process and those effects become less imminent and you’ll probably see more active LNG coming our way again.”
Mr. van Gelder added that TTF, Gasunie’s trading platform, had really grown significantly and the company was now trading a volume which was two and a half times the total traded volume in France, Belgium and Germany altogether.
“Because we have this gas roundabout philosophy and want to continue to develop as the major hub in northwest Europe, we participated in Nord Stream,” he continued. “We have been monitoring its gas flows and see that Nord Stream is being used at a good rate. The question for the long term is what the throughput through the Ukrainian transit route will be and how will that develop. I think that is key for the development of the other projects.”
Van Gelder noted that his predecessor at Gasunie, Marcel Kramer, was leading the South Stream project, which he believed was turning out to be successful.
He commented: “We’re looking at such projects, but it’s not part of our strategy to participate in South Stream or Nabucco. In the long run, it will be a total volume of around 550-600 bcm on an annual basis from Russia to Europe, which will be divided between Nord Stream, the Yamal pipeline through Poland, the pipeline through Ukraine and South Stream.
“It will be a challenge for the European Community to develop Nabucco, because first of all you need to have confirmed supplies and so far I don’t see that at this time.”
He offered his distinction between gas markets in Western Europe and those further afield in Central & Eastern Europe.
“If I look at Europe I see a development. Moving from northwest to southeast one can see a change in the importance of spot markets,” he explained. “Today in 2012, you see a strong spot market developing in the Netherlands, but you also see strong market area developments in Gaspool in the northern part of Germany and in NCG, Net Connect Grid in the southern part of Germany. The major hub of course is the NBP in England which has a high traded volume and is very liquid. The Netherlands is developing very well and Germany is also, but the further east you go in Europe one sees old, long-term contracts that have an oil-linked price.
“In the future we’ll have to accept the fact that spot market prices will become increasingly important throughout the whole of Europe. I’m not saying that we’ll move away from long-term contracts which have an oil link, because you sometimes need these to underpin infrastructure investments, but you will see in the price formulas the growing importance of the spot market components,” he said.
Mr. van Gelder offered his opinion as to what role natural gas should play in the future of Europe.
“It is both the company’s and my personal belief that once we have a good working emissions trading system (ETS) from the European Commission, then it will be very obvious for everyone that natural gas is the preferred component in the sustainable energy mix of the future. The prerequisite is a good, well-functioning ETS scheme in place in the near future. As long as the costs for a ton of CO2 are below EUR 15, then the ETS cannot be considered to be working and it will still be possible to develop coal-fired power plants. These will not enable lowering of CO2 emissions, thus we will not reach the 20/20/20 emissions target.
“So I think natural gas has a very strong role to play here, not only as the backup to sustainable energy like wind and solar, but also in order to reduce CO2 emissions. But for that we need a better ETS.”
He said he believed Europe would see more gas-fired power plants in the coming five years, due to several reasons.
“If you phase out nuclear in a swift way, like Germany, and you don’t have the infrastructure in place to transport wind energy from northern Germany to southern Germany, you must find an alternative – such alternatives can address the winter season. In southern Germany you will need gas-fired power plants.”
“At the moment it’s very dynamic,” Mr. van Gelder said of the natural gas business in Europe. “We’ve seen some global developments and some regional developments, but they’ve all had some influence on the European gas market.”
One development, he noted, was the evolution of unconventional gas in the United States.
“It changed the LNG market substantially,” he explained. “The development of major pipelines towards the European market, with a focus on Nord Stream and further down the road, South Stream and Nabucco. The Third Energy Package has had a huge impact on the European gas market. And if you look at all these factors and take them together, the natural gas business in Europe has become very, very interesting.”
According to him, Europe was now entering a new phase of natural gas.
“We will see more consolidation, especially in Germany I think. We’ll see further unbundling of vertically integrated companies and stand-alone infrastructure companies and gas trading companies. So it’s quite exciting to be working in the natural gas business, which makes for a number of challenges.”
One, he said, was the question of whether Europe would get the right technically-skilled people once all the baby boomers left the market; also, would it be able to predict and forecast the required infrastructure investments?
“All these kinds of challenges are laid out for us,” concluded Paul van Gelder.