Material Issues

The material issues for 2018 are contractual obligation, economic performance, sustainable deployability, sustainable energy supply and support for activities. These issues were determined partly on the basis of the outcomes of the stakeholder dialogue held in 2017 and are an input for our strategy. These material issues are described in more detail in this section.

Contractual obligation

Security of supply was one of the themes in the stakeholder dialogue. By this we mean the need to have enough gas in portfolio at every point in the year to be able to meet our contractual obligations. In the dialogue we noticed that the difference between security of supply in the market and GasTerra’s contractual obligations is not always clear. GasTerra is not responsible for security of supply in the market as a whole, because we are only one of the parties buying and selling gas. To prevent confusion, in this report we use the term ‘contractual obligation’.

GasTerra has adapted its strategy to the circumstances. Before the first production decision (in 2014), GasTerra worked according to a 10-year flexible purchase ceiling laid down by law. If the volume purchased in one year was below the annual average, this could be made up subsequently by higher purchase levels. The current production limits mean that GasTerra has to plan more accurately than in the past. GasTerra aims to buy all the Groningen gas offered by NAM. It is up to GasTerra to keep its sales obligations in line with the declining supply. This is done by matching the portfolio - the total sales obligations - as closely as possible to the supply of gas.

It was already clear that GasTerra would gradually reduce the volume of gas it sells before the maximum production level for Groningen gas was set. Both the Groningen field and most small fields are coming to the end of their production cycle.  

Economic performance

It is obvious that the company regards economic performance as a material issue. Maximising the value of Dutch natural gas is after all GasTerra’s mission. It attempts to do this efficiently while keeping a good balance between costs and care. It is an important issue for both GasTerra and its stakeholders, understandably mainly the shareholders. It is however noticeable that stakeholders set greater store by external safety and security of supply than by maximising income.

Product improvement
GasTerra works closely with its clients on the development of new products. The positive effects of continuous product development were reflected in the sales contracts for subsequent years. This year GasTerra reacted to the increasing need for flexible deliveries on the TTF. By offering market players a combination of various types of flexibilities, price concepts and volumes in 2017 we were able to react to the various needs of major international energy companies to purchase flexibility for their portfolio in a staggered fashion. 

Purchasing
In 2017 GasTerra bought 56.6 billion cubic metres of gas (2016: 63.9 billion cubic metres). 22.6 billion cubic metres of this came from the Groningen system (including storage facilities) and 17.3 billion cubic metres came from small fields. 16.7 billion cubic metres was purchased on trading hubs and via imports.

The volumes from the Groningen system are different from the production figures reported by NAM, and which are related to the production ceiling. This difference is due to a number of factors, including own use and the difference between injection and production from the underground storage facilities. In addition, GasTerra reports volumes on a calendar year basis, while the production ceiling is bound to the gas year.

Over the past decade, the purchase of gas from small fields has declined year on year by around two billion cubic metres. This is because the reserves in the small fields are shrinking (depletion). This reduces the pressure in these fields and causes production to fall gradually. Although reserves are still being found in new fields, this does not compensate for the decline in production. A further fall is expected in the years to come. These forecasts are based on reports from producers and TNO.

In 2017 GasTerra imported 9.3 billion cubic metres from Norway,  Russia, Germany and the United Kingdom. The long-term nature of the import contracts meant that there were fewer changes in this segment than in previous years. GasTerra is not entering into any new long-term contracts.

Supply
GasTerra supplied 56.6 billion cubic metres of gas in 2017. Some of this was supplied to the traditional supply points such as connections and border points. Gas is increasingly being traded on entities called hubs. This means that it can change hands several times before finally reaching the end user. This means that gas contracted by foreign parties does not necessarily cross the border, and gas that we sell on the TTF can eventually leave the country.

Supplies were 7.3 billion cubic metres lower than in 2016. The main reason for this is the limitation on production from the Groningen field. Prices were higher than in 2016. The average price paid per cubic metre in 2017 was 16.9 eurocents compared to 15.3 eurocents in 2016.  

Several existing import and export contracts were renegotiated in 2017. Arbitration takes place where no agreement can be reached. GasTerra was involved in four cases of arbitration in 2017, and two of these had still not been concluded by the end of 2017. As the outcomes of renegotiations or related arbitration that are still unresolved are uncertain, the possible outcomes of these proceedings are not reflected in the financial statements.

Transmission
In order to meet the obligations under our trading contracts we book transmission capacity with network operators, especially GTS.

In 2017, the cost of purchasing transmission capacity stood at 287 million euros. That is 214 million euros lower than in 2016. One important reason for this fall in transmission costs is that in 2017 GasTerra no longer had any supply obligations in the United Kingdom, and consequently no transmission was contracted in the BBL pipeline to England. GTS’s transmission tariffs also fell in 2017 as a result of a decision by the regulator ACM.

The means by which the new European Network Code Tariffs will be implemented in the Netherlands are expected to become clear in 2018. ACM will come to a decision on this after consulting the market and receiving input from GTS. This decision will have consequences for the structure of the transmission tariffs from 2020 onwards, and is likely to be an important factor in determining the level of GasTerra’s transmission costs in the future.

Sustainable deployability

Declining gas volumes and changing market conditions were behind the decision to start the ‘GasTerra 2018’ reorganisation trajectory in 2014. In 2017 GasTerra started to implement measures arising from this restructuring. A social charter has been agreed with the trade union, specifying that the outflow needed must be take place on a voluntary basis. The charter includes a package of measures, including secondment, careers advice, coaching, courses, training and a conditional return to employment guarantee.
It is expected that the target reduction in headcount from approximately 200 fte in 2015 to around 160 fte by the end of 2018 will be achieved. The next step is to keep the organisation future-ready for the period after 2018. By means of strategic staff planning we will determine what competencies are needed and what HR policy is required to that end. Some of the issues that arise in that context are encouraging progress within the organisation and career development for staff inside and outside GasTerra.

The need to conduct a strategic staff policy is one reason why the board regards sustainable deployability as a material issue. Stakeholders also indicate that they consider this an important issue. They believe that GasTerra must ensure that the organisation continues to perform at a high level despite the contraction.

Health and safety
GasTerra believes that it is important to create a good working environment for its staff. The company’s occupational health and safety policy lists traffic, stress, RSI and minor accidents as risks. GasTerra’s emergency response team undergoes regular training. Evacuation exercises are also held for the entire workforce.

The rate of absence due to illness was considerably lower in 2017 than in 2016, at 1.6% (2016: 3%). This fall is due to the decline in non-work-related long-term absence. 

Sustainable energy supply

GasTerra carries out concrete projects as part of its contribution to the transition to a climate-neutral energy supply. Stakeholders are also of the opinion that GasTerra can use the energy-related knowledge and skills present in the business, and that it must take opportunities in the area of new gases. This is therefore also a material theme, as it was in 2017.

We support our industrial clients in making production processes more sustainable via the Environmental Plan for Industry (EPI). The emphasis is on improving their energy efficiency and reducing their emissions. GasTerra’s energy transition policy focuses on knowledge development on the one hand and on testing and demonstrating energy transition in practice, with a visible role for gas, on the other hand. The key points here are renewable gases, innovative gas applications and the systemic function of gas. Of these three points, more attention should be devoted to renewable gases as this allows us to offer a green alternative to natural gas.

GasTerra wants to make a contribution to the rise in production of renewable gases in the Netherlands. For this reason, in 2018 we will support parties that wish to produce (more) green gas and develop green technology that is not yet market-ready, such as high-pressure fermentation and gasification. Hydrogen also offers a green perspective for gas. Natural gas can be used to enable the transition to a hydrogen economy. We examine how the development of hydrogen (projects) in (northern) Netherlands is progressing, and see whether we can play a sensible role here.

One of the bodies carrying out research in the field of energy transition is EnTranCe (Energy Transition Centre). GasTerra is involved in various EnTranCe research projects, working with various partners. Ameland municipality is often a partner for the larger-scale testing of research projects. The Sustainable Ameland projects are conducted under the umbrella of a covenant. The aim of the participants is for Ameland to be 15 to 20 years ahead in the energy transition.

On the island, GasTerra is involved in rolling out hybrid heat pumps in homes and in the generation of green gas. We expect to be able to report in 2018 on the social, economic and technical experience gained with the 100 or so hybrid heat pumps installed in 2017.

GasTerra promotes the use of green gas on the island. It should be possible to produce this gas in various ways from local waste and waste water. EnTranCe has been testing an interesting option for this: the high-pressure fermentation technology developed by the SME Bareau. With the support of GasTerra, a consortium of companies is working on a plan for a trial plant on Ameland. A number of important steps have already been taken, involving bodies such as the local council, the Water Board and the Wadden fund.

In 2017 GasTerra set up the Green Gas department in order to make a more intensive and focused contribution to the growth of the production and use of green gas. The department is responsible not only for the production of green gas but also for helping carry out green gas projects, bringing together relevant parties and supporting innovations. Our network of contacts appears to be useful in the implementation of green gas projects. The aim is to offer purchase contracts that meet the criteria of the SDE+ subsidy scheme.

In 2017, GasTerra entered into a gas contract with project developer Blue Sphere for the purchase of the gas produced from one of the biggest biogas plants in the Netherlands, which produces 24 million cubic metres a year. Over the next two years, this organisation will build a large fermenting plant in Brabant. GasTerra currently has a purchase portfolio of a total of 125 million cubic metres from Dutch green gas production installations. GasTerra expects to be able to further expand this portfolio in the years to come. In view of the projects that are at the planning or development stage, GasTerra considers that it is feasible for the Dutch production of green gas to rise from 100 million to 200 million cubic metres a year by 2020. 81 million cubic metres of green gas was certified by Vertogas in 2016. This is equivalent to 42 per cent of the total solar energy production in the Netherlands in 2016.

In 2017 we focused primarily on increasing production, but in the immediate future we will emphasise how we can better facilitate the increasing demand for green gas among GasTerra clients.

GasTerra will take part in projects under the Strategic Agenda of GILDE in 2018, as it did in 2017. These projects demonstrate the gas sector’s contribution to the energy transition. GasTerra will coordinate the green gas project and contribute to the themes of hybrid heat pumps and hydrogen. A green gas route map will be drawn up with interested parties as part of the GILDE green gas project. 

Support for activities

GasTerra considers social acceptance for its activities important, as do its stakeholders. Although GasTerra has only limited influence on the social acceptance of the many activities within the gas sector, we recognise that without support every company in the sector, and therefore also GasTerra, would eventually lose its right to exist. Consequently, this is a material issue.

Natural gas does not have a good image in  Europe. The reasons for this vary from region to region. In the Netherlands, the problems are due primarily to the earthquake problems resulting from gas extraction in Groningen and also the realisation that the use of fossil fuels leads to climate change. This means that the extraction of natural gas, not only from the Groningen field but also from the small fields, is under pressure. In Europe, particularly eastern Europe, the product’s reputation suffers primarily from dependence on gas imports from Russia.

The earthquakes in Groningen were and still are a factor that requires considerable attention. The Groningen residents affected have every right to this. Safe gas extraction and rapid repair of the damage caused must therefore be the top priorities. In addition, security of supply for the millions of households reliant on Groningen gas must be guaranteed.

Fossil fuels, and therefore also natural gas, are all in all part of a problem. At the same time, gas is also ideally placed to be part of the solution. Our product plays a vital role in the transition to a climate-neutral energy supply. The 'Gas-by-Design' concept is the gas sector’s way of building a bridge between the desired CO2 reduction and boosting stability and the necessary security of supply and cost-effectiveness of measures. In brief, the key element of this strategy is that in the energy transition natural gas should only be used where sustainable alternatives such as wind and solar power are less attractive or impracticable for any reason. We cannot do without gas now or in the immediate future; especially renewable gas can, as part of a climate-neutral energy balance, make a valuable contribution to the energy supply. In particular cases, combinations of gas and sustainable sources are the best solution. At the same time, green gas can bring about emission reductions in other sectors where improving sustainability is difficult. In other words: gas is becoming customised.

This proposition is the foundation of the gas promotion activities of the gas sector, represented by the umbrella organisation KVGN. In 2017 this group launched a campaign under the motto Less CO2, count us in, which will continue in 2018. The federation argues for pragmatic, cost-effective solutions for the climate and energy issue via a website, advertisements, short films, social media and other communication tools. The most important factor is not the means but the (very) ambitious targets that flow from the Paris Climate Agreement. Opting for (cost-)effective CO2 reduction is therefore the obvious choice. Where fossil or renewable gas offers the best environmental outcome at the lowest cost in the short and medium term, we must (continue) to use it. A climate-neutral energy supply is the eventual target.

Since its inception GasTerra has positioned itself as a Groningen company. In 2018 we will therefore continue our efforts to help the northern Netherlands develop into an energy (transition) knowledge centre. We do this in various ways, such as by focusing on our region when pursuing our energy transition policy. Examples of this include the New Energy Coalition set up in 2017 (a joint venture including the Energy Academy Europe, the Energy Delta Institute and Energy Valley), EnTranCe, ESTRAC and the long-term project Sustainable Ameland. We also work on various educational projects, often with other partners. Examples include the travelling classroom Your Energy of Tomorrow, the Battle intermediate vocational education provision and activities carried out by the Institute for Nature Education (INE).