Since my appointment as CEO of GasTerra just over a year ago, I have often been asked why I wanted to go and work for a company ‘that might no longer exist in a couple of years’. The subtext is clear: (natural) gas is a thing of the past; we need to move away from it quickly; there will soon no longer be any place for GasTerra as a purchaser and vendor of domestically-produced gas in particular. In short, what are you getting into?
This question is based on a misunderstanding, or more accurately, a number of misunderstandings. A survey recently conducted on behalf of the Ministry of Economic Affairs and Climate Policy found that most Dutch people have no idea of how much of the national energy mix is made up of renewable energy. Figures of 40 per cent and more were quoted, but in fact it is less than ten per cent. Everyone is aware that things have to improve. So the ambitions are high, but it is and remains a huge challenge. Good intentions alone are not enough. Pragmatic action is, provided that everything goes well. The current and future role of (natural) gas needs to be reassessed in the light of this.
Some people involved in the climate debate think that gas needs to be regarded purely and simply as a problem that can be resolved by closing down the complex gas network as quickly as possible and replacing it with heat networks and fully electric systems. This attitude also rests on a misunderstanding: that climate neutrality can only be achieved quickly by rapidly doing away with all fossil fuels. But we need smarter answers. The contribution of natural gas to the energy supply is so large that it will have to continue playing a key role in the energy transition for a long time to come. The figures speak for themselves: around 95 per cent of homes in the Netherlands are connected to the gas network. If they are all to be provided with an alternative, sustainable form of heat supply before 2050, then from now on more than 200.000 homes a year will have to be taken off gas.
Leaving aside the question of whether this is a feasible task, we must also realise that the built environment only accounts for a relatively small proportion of energy demand. Anyone who wants to make progress must first and foremost deal with CO2 emissions by industry and transport. In that segment fossil fuels still have a major role to play as cost-efficient energy carriers.
I've said it: CO2 emissions. The gas sector has for a long time been making the point that we have to focus on emission reduction. Sustainability must not be an end in itself: the important thing is to achieve the climate goals of the Paris Agreement without doing unacceptable socio-economic damage. How we achieve that is fundamentally a secondary issue. What this means is that you must not ignore any usable approach, including rapidly replacing the most polluting fossil fuels, especially coal, by relatively clean natural gas, and including the storage and possibly beneficial use of CO2.
In itself, this is not a new message from the gas sector, but those who understand these matters will realise that there is a new element: the realisation that in a climate-neutral energy supply, natural gas will eventually no longer occupy the position in the energy mix that it now holds. We therefore believe that it is a good idea to stop connecting new-build homes to the gas network. For that reason we are also working actively on projects, programmes and trading activities to ensure that gas can itself become more sustainable; think in particular of biogas and renewable hydrogen. We support the efficient use of energy, for example by encouraging hybrid heat pumps, which can lead to a sharp reduction in demand for gas. This requires companies that produce, distribute and sell gas to anticipate the new circumstances and the broader wishes of society.
GasTerra is no exception to this. Our mission, to maximise the value of Dutch natural gas, has not changed since our foundation. But the way we achieve it has, partly as a result of the liberalisation of the gas market in recent years. Another factor is that we are part of a political and social environment that has different requirements and norms compared to the past. More than ever, this forces us to think about what exactly the term ‘value’ means, our role in the gas chain and our contribution to the energy transition. These aspects are fully taken into account in this annual report.
The problems in Groningen deserve special attention. Developments have accelerated after the earthquake in Zeerijp on 8 January. The National Mines Supervisory Body has recommended that gas extraction be reduced at a faster rate (to no more than 12 billion cubic metres a year), and Gasunie Transport Services has recommended a production range in a warm versus a cold year (of 14 to 27 billion cubic metres). The Minister for Economic Affairs and Climate will take account of these recommendations as he considers a new production decree. Leaving aside the issue of exactly how a reduction in gas extraction should be implemented, we see it as part of our social responsibility to make every effort in helping to resolve this issue.
In the light of the major changes in the national and international energy markets, the business climate for GasTerra has become rather tougher. Volumes bought and sold have remained fairly stable despite the falling demand for gas, but prices have been under pressure for some years. This is reflected in our earnings. In 2014 our turnover stood at 19.5 billion euro; a year later this figure had fallen to 14.7, in 2016 it was down to 9.9 billion and in 2017 the figure was 9.6 billion. Despite this sharp decline, I am satisfied with the result. After all, despite all the social and economic turbulence, our company has once again managed to successfully complete its mission.
Our staff work in an environment that is much less predictable than it was in the past, in an organisation that has responded to the worsening business climate by undertaking a thorough process of change. As a result of the associated restructuring, which has been taking place since 2015 and is set for completion before the end of 2018, the number of jobs in GasTerra has fallen substantially. With a single exception, no new employees have been or will be taken on.
We are now thinking about what happens next. How do we ensure that our company can continue to carry out its tasks for the decade to come? We do have considerable influence on this, leaving aside the external factors, provided that the knowledge and skills of our staff are a good match for the requirements that the market and society have of us. Consequently, we have launched a strategic HR management programme aimed at mapping competencies and the available functions and aligning our staff development policy to them in the best possible way. We expect to start implementing the outcomes of this in 2019.
I should like to end with a word of thanks. First of all to our staff. They are GasTerra, and so deserve appreciation for the good results. Then to all our other stakeholders for the confidence that they have placed in us and for the mutual dialogue that will help us remain relevant in the future.
Chief Executive Officer