Various external developments affect our strategy, activities and operations in the short, medium and long term.
In 2016, the Dutch Minister of Economic Affairs announced in its new Gas Decision that gas production from the Groningen field would be limited to a maximum of 24 billion m3 per year, to reduce the risk of earthquakes in the region. This reduction in the volume of Groningen gas directly affects our operations. For instance, in the Netherlands, the utilisation of our nitrogen capacity will increase, and in Germany, market areas will be converted from low-calorific to high-calorific gas. These developments also stress the importance of a properly functioning gas roundabout. This ensures that sufficient gas will be available for domestic households and industries, now and in the future. Thanks to the gas roundabout, which facilitates a liquid gas market, the decline in production from the Groningen field can be offset, both by additional import from abroad (such as Russian gas) through our pipeline network and by the supply of LNG.
In the medium term, society is shifting towards an energy supply with minimum CO2 emissions. CO2 reduction can be achieved in several ways. The Dutch gas sector, united in KVGN, applies the ‘Ladder of 7’. This ladder shows the order in which the next steps could be taken to reduce CO2.
The ladder starts with energy efficiency as the most effective form of CO2 reduction, followed by the utilisation of sustainable sources, such as solar, wind and renewable gas, and then the utilisation of fossil sources, of which gas is preferred as the cleanest alternative. We believe that, for a CO2-neutral energy supply, natural gas is the best option if a more sustainable solution is not available. At the same time, natural gas will increasingly be replaced by renewable gases. In the gas sector, this principle is known as ‘Gas by Design’.
The international climate discussions focus mainly on reducing emissions in the long term (2050). But if fossil energy still needs to be used in the medium term, forms of energy with the lowest CO2 and NOx emissions are preferred. The use of natural gas (e.g., for generating electricity, transport over water, heavy trucks, or as a replacement for diesel) instead of coal and oil leads to a reduction in CO2 and NOx emissions.
Energy savings and an increase in the production of sustainable energy will eventually result in a lower total demand for fossil energy. This will also affect the use of natural gas, even though gas will continue to be an important part of the energy mix to offset peaks in demand and as a back-up (e.g., via hybrid heat pumps in buildings). At the same time, renewable energy sources will gradually replace fossil fuels, and renewable gases, such as biogas, green gas, syngas and hydrogen, will replace natural gas. Carbon capture and storage (CCS) and heat supply will still be playing a role in this future, and are therefore relevant themes for our company and our future infrastructure.
Other developments that have a major effect on the context in which we operate, include:
The Netherlands is working on a low-CO2 energy supply for the future, in accordance with the Paris agreement on climate change. One of the provisions of the Dutch Energy Agreement for Sustainable Growth is that, by 2020, 14% of all energy must be generated from renewable sources, rising to 16% by 2023. We aim to contribute to achieving this objective by facilitating the integration of renewable energy sources. To this end, we focus primarily on activities that enable the development of renewable gas.
In addition, the share of wind and solar energy is increasing. However, these sources depend on nature, as a result of which the supply of energy will not always be able to match demand. The gas transport system offers a solution to create a good balance between supply and demand by providing flexible services such as storage and peak and back-up capacity. Energy can quickly and easily be stored as gas and immediately be used again at peak times or when solar and wind energy are in short supply. In addition, any surplus of sustainable energy can be stored as gas at a large scale, and be used again when energy is in high demand. Gas can therefore play an important role in the efficient deployment of solar and wind energy. Through further integration, local and central energy systems, existing and new networks and various energy carriers (such as electricity, gas and heat) can interact optimally. This system integration accelerates the energy transition and makes sure that a sustainable energy supply will remain affordable and reliable. We are convinced that our infrastructure will play a crucial role within the energy system as a whole, ensuring a reliable, affordable and sustainable energy supply.
Developments in the European gas market
The internationalisation of gas flows in Europe has led to increased variations in gas composition in our network. In addition, the production of natural gas in Northwestern Europe as a whole will decline, just like in the Netherlands. To offset the reduced production of the Groningen field, in the first instance, the exit capacity of L-gas to other countries will be reduced. Between 2025 and 2030, the use of exit capacity of L-gas at all border points (Germany and Belgium) will decrease by approximately 10% per year.
In Southeast Europe, we anticipate a growing share of gas in the energy mix. In these countries, gas will increasingly replace other fossil fuels, such as oil and coal, as a first important step in reducing CO2 emissions. To enable a larger share of gas in the energy mix, we believe that the gas infrastructure in these countries needs to be developed further safely and reliably, in order to be able to increase the liquidity of the gas market.
Revenues under pressure
The energy mix is changing. The use of sustainable, locally generated energy is increasing and, as a result, the share of fossil energy sources is decreasing. This will also affect the share of natural gas and the deployment of our infrastructure. Additional transit flows will not be able to fully offset this decline in gas transport, resulting in lower capacity bookings and smaller volumes of transported gas. This puts our revenues under pressure, in both the regulated and non-regulated environment in which we operate. Revenue regulations apply to our regulated activities, based on the recovery of efficient costs. Regulators periodically impose new efficiency targets by limiting future revenues through new method decisions for the coming regulatory periods.
Developments in the labour market and a sustainable HR and employment conditions policy
The world in which we live and work is changing rapidly. With regard to the labour market, we can distinguish three general trends that are relevant to us:
- The labour market is still tight when it comes to technically trained employees.
- The retirement age is moving to 67. This places different demands on employees and on our workforce planning.
- Digitalisation and robotisation are increasingly taking over traditionally human tasks.
To anticipate these changes, our organisation needs to become more flexible and agile. These developments require an HR policy that focuses on the sustainable employability of employees. Employees will need to continuously develop themselves, including in new areas. Our staff needs to be future-proof, so they can keep up with the latest developments.