No. 3, 2009

Oil of Russia magazine talks to Marcel Kramer, Chairman and CEO of N.V. Nederlandse Gasunie

The world demand for gas as the cleanest fossil fuel is steadily growing. Shrinking production in Europe means that gas has to be supplied over increasingly large distances, either by pipelines or LNG carriers. The European market needs a rapid expansion of its transport capacity. This gives Gasunie, which is a participant of the Nord Stream project, an opportunity to further build on its strong position as a front-runner for the European gas infrastructure market gas.

Q: Mr. Chairman, about half a century ago the Groningen gas field was discovered. In your view, how strongly did this event influence on the following development of the Dutch energy industry and country's economy in general?

A: The discovery of the Groningen field in fact meant the start of the natural gas era, not only in The Netherlands but also in surrounding European countries. The impact of this event was big - not only on the economy and energy industry, but also on the national economy and on the development of our social systems. In addition gas immediately had a positive environmental effect.  As the successor to coal and oil, natural gas brought about a substantial improvement in the quality of the environment. Since then, Gasunie and the gas industry have worked continuously to improve its efficiency. Take, for example, the large-scale deployment of high efficiency boilers, which has already made an enormous difference in terms of energy efficiency.

The effect on both the structure of the Dutch energy industry and the Dutch economy as a whole has been enormous. From natural gas resources, billions of euros were and still are flowing annually into the Dutch treasury. Natural gas accounts for a substantial share - in some periods even up to almost one third - in the average growth of the Dutch economy during the past 50 years. 

Another effect has been that our industry and also energy intensive agriculture have been able to restructure and gained long-term competitiveness through the use of efficient gas technologies. Since natural gas' share in the total primary energy supply of the Netherlands is by now some 50% and since the majority of gas is produced in the Netherlands itself, Dutch gas has meant security of supply during the last 50 years and it will remain so for many years to come.

Also countries surrounding the Netherlands have benefited from Dutch gas and its flexibility. Export contracts have been signed with many market parties from different countries, ranging from our immediate neighbours - Germany and Belgium to more remote countries, such as Italy and Switzerland. In this endeavor of the last 50 years, the Dutch gas industry, which was built on the discovery of the Groningen field, has given shape to the gas sector not only in the Netherlands but also in Northwest-Europe in general.

Q:  What are the current positions of Gasunie comparing to other key European gas companies? 

A: A very special position, because Gasunie is nowadays a European front-runner as a gas infrastructure company with a cross-border network, which ranks among the largest high pressure gas pipeline grids in Europe, consisting of over 15,000 kilometres of pipeline in the Netherlands and northern Germany, dozens of installations and numerous gas receiving stations. Gasunie is a pure, independent gas transport service provider, a facilitator. Until 2005 Gasunie used to be an integrated gas company, responsible for both gas trade and gas infrastructure. Today, Gasunie enables market players to trade and supply. Our strategy is aimed at enhancing market interconnectivity.

Our focus is now purely on further development of gas infrastructure in the Netherlands, Germany and Northwest-Europe in general. A number of major projects have been initiated (or even finalized), ranging from the BBL pipeline connecting the European mainland with the UK to the GATE terminal for import of LNG into the harbor of Rotterdam. Gasunie also acquired the former BEB transmission grid in the Northern part of Germany and initiated gas storage projects, such as the Zuidwending cavern project in the Netherlands. 

By following our strategy as a European infrastructure and transport facilitator, which is unprecedented in the European context so far, Gasunie has established gas infrastructure as a truly independent business. This is all to the benefit of all our stakeholders, ranging from gas producers to customers. Gasunie, through its actions, helps to establish a better and more secure market place for gas, connecting downstream and upstream assets through its midstreaminfrastructural activities.

Q:  How would you assess the current situation with Russian gas supplies to the Netherlands? What place in Gasunie's development strategy is allocated to the Nord Stream project?

A: So far, the Netherlands rely for the largest part on own indigenous gas production. Import volumes are still relatively modest. At this moment imports from Russia amount to some 4 billion m³ per annum, based on a contract between GasTerra and Gazprom (stemming from the integrated period in the history of Gasunie). However also in the Netherlands the supply situation is shifting towards more import. It is clear that Europe will import higher quantities of gas from Russia in the future. Natural gas is crucial for Europe to meet its energy requirements while at the same time combatting climate change. The use of natural gas is increasing because it is the cleanest fossil fuel. Gas produces less CO2 than either coal or oil, and Europe cannot achieve its climate protection goals without it. Gas is playing a key role as European providers switch from coal and oil to the sustainable energy technologies of the future. The unique thing about gas is that it adds flexibility to the energy supply, since gas-fired power stations can be quickly regulated in direct response to demand. Wind and solar power need exactly that kind of flexibility to be optimally deployed in the energy supply chain. If the renewable share in the energy supply grows, then the need for a complementary flexible and reliable fuel also increases. And that fuel has to be gas. Gas makes the efficient consumption of renewable energy possible. The great strength of gas is that it can fulfil a system role, as a partner for sustainable sources.

Experts predict that Europe will have to import over 80% of its total natural gas requirement by the year 2025. Securing the future The Nord Stream pipeline will be able to meet about a quarter of currently unsecured demand, so the project is making a significant contribution to European energy security.

With this in the back of our mind, Gasunie has joined the Nord Stream consortium and became a shareholder in the pipeline that will connect Northwest Europe with Russian gas. Nord Stream is part of diversified supply for the European market and a necessary investment to ensure the long term and secure availability of gas supplies to the European market. It also strengthens the interdependency of the energy relationship between the EU and Russia.

Nord Stream is an essential project in our strategy, not only as a stand-alone asset but also as an asset with a great spin-off for infrastructural activities in Europe. Take an example: we have acquired a German network (former BEB grid) by which Gasunie's geographical span extended from the Netherlands and the UK (BBL pipeline) to Berlin. From Berlin to the landing point of Nord Stream, it is roughly 200 km. We as Gasunie are then also determined to establish a connection between our network and Nord Stream and to facilitate further transport of Russian gas into Europe.

Q: What prospects, according to your opinion, does Gasunie have in the sphere of the LNG supply?

A:  LNG has great potential. The current situation in the LNG market makes that even more obvious. Gasunie currently constructs (together with Royal Vopak) an LNG receiving terminal in the Rotterdam harbour area. By doing so, Gasunie provides the LNG suppliers with the upsides of the Dutch gas market, that has become one of the most liquid gas markets in Europe and that, through its robustness, provides for accommodation of gases with different qualities and for load factor conversion. Through the Dutch market, LNG suppliers get access to a large market place ranging from the UK to the Netherlands to Germany and even Eastern Europe.

Q: The world is constantly looking for efficient alternative kinds of fuel. Does your company consider projects connected with alternative energy, for example biogas, as perspective?

A: Gasunie is looking actively at ways to contribute to energy sustainability. We developed for instance a pilot project for injection of biogas into the high pressure transmission grid in the Netherlands. Also we are on the brink of launching a certifying institute. This can enable a market for green gas. The potential of biogas is considerable, and it doesn't have to be at the expense of food production. Thanks to the available infrastructure, the Netherlands can do a lot with green gas.

However, ‘greening' the gas supply is just one of the possibilities that gas has to offer as a transition fuel. Another one is the unique role of gas I mentioned earlier: gas provides the flexibility in the electricity production which compensates for the unpredictable behavior of renewable sources. In other words, gas will help to fit demand with supply. This belief of Gasunie is at the core of its gas infrastructure development strategy. Gas as a springboard for a more innovative and sustainable energy supply - that's what we must ultimately aim for. With the ‘gas roundabout', we're standing with both feet in the present while at the same time developing a basis for the future. We are thus building on the Netherlands' unique natural gas legacy.

Q:  Mr. Kramer, what would be your prognosis for the situation in the world gas market in the nearest future?

A: In short-term, demand might slightly be under pressure due to the economic crises which has hit the world economy substantially. However, in long term, gas will continue to play an important and unique role in the transition towards sustainable energy or, may be even stronger so in the sustainable energy system of the future. As the economy will recover, so will the gas demand and we in the gas industry have to assure that the rising demand can be accommodated. Investments in the gas infrastructure are long term and an economic recession, however long, cannot lead to unsecure gas and energy deliveries in the future. Therefore, we remain focussed on our work and will make gas infrastructure more robust, such that security of supply is assured for the years to come.

Q: How would you describe in short the long-term strategy of Gasunie?

A:  Gasunie develops gas infrastructure in order to interconnect European markets and accommodates changing and new gas streams. This all to assure for a sustainable energy future with a prominent role for the most flexible, clean and abundant of all hydrocarbons - natural gas.