Our gas transport and infrastructure activities are central to our strategy. In carrying out our strategy, we strive for operational excellence.
A gas transport record
The year 2013 started with a long, cold winter. In the Netherlands, Germany and the surrounding countries, this led to a high demand for natural gas. An ever larger share of the transported volume relates to the throughput of gas from and to foreign countries. Increasingly, our network functions as an international hub in the throughput of gas.
In 2013, we transported 1,365 billion kWh (140 billion m3) of gas, of which 1,131 billion kWh (116 billion m3) flowed through our Dutch network and 234 billion kWh (24 billion m3) through our German network. For GTS this was 104 billion kWh (11 billion m3) more than in 2012 – a new annual record. The previous record year was 2010, when we transported 1,080 billion kWh (111 billion m3). The volume transported through our German network is more or less the same as last year.
With the transport of gas and related services, we generated revenues of € 1,311 million: € 1,083 million in the Netherlands and € 228 million in Germany.
Partly due to the unusually long winter, our transport costs in 2013 in the Netherlands and Germany were higher than expected. Another reason for the increased transport costs in Germany was a ten-day interruption in Danish gas production from the North Sea, in May. As a result, the stocks in the Danish gas storage facilities reached the lowest level ever. They had to be replenished, and this led to constant large gas flows to Denmark during the summer. The interruption in production in Denmark was also alleviated by extra imports from other Western European countries that were transported to Denmark through our network. With the connection of NEL to our network in Heidenau, we significantly improved the situation of transport to the north from November 2013 onwards. Less compression is required, which reduces our costs.
We have noticed an important shift with respect to the capacity contracts – customers increasingly prefer short-term contracts. This means that transport revenues are subject to greater volatility and unpredictability. In 2013, less capacity was booked with Gasunie Deutschland than expected, in spite of the fact that decreasing entry bookings and cancelled contracts had already been taken into account. Given the method of turnover regulation used, a rise in tariffs for 2014 is unavoidable.
Despite this volatility, the permitted revenues for the years 2012–2016 will increase, due to the fact that new infrastructure is now in operation. Until 2016, the full use of NEL will lead to a significant increase in revenues, which are guaranteed by long-term bookings. The revenue will also increase as a result of other new investments, which have been allowed and approved by the regulatory authority.
In 2012, we drew up an efficiency programme that should enable us to achieve structural savings of € 60 million from 2012 up to and including 2014. This Efficiency Masterplan is making good progress. It is on schedule, and by the end of 2013, we had managed to achieve a cost reduction of approximately € 40 million.
Safety performance: constant attention
We measure our safety performance using two indicators: the frequency index and the number of pipeline incidents. In 2013, we unfortunately failed to meet either of these objectives. With regard to pipeline incidents, we aim for zero, and have set a signal value of five (as maximum). In addition, with regard to the number of reportables (personal accidents), we have set a signal value for the frequency index of four (as maximum), with zero fatalities. However, in November 2013, a crane operator employed by one of our contractors was sadly killed in a tragic accident. Six pipeline incidents occurred, exceeding our signal value of five. Of course, the causes of all of these incidents will be investigated and appropriate measures will be taken to reduce the number of incidents. A more detailed report of our safety performance can be found in Results with respect to safety, environment and chain responsibility.
High level of security of supply
In addition to safety, security of supply has a high priority within our company. The number of interruptions and disruptions in gas supply related to quality issues remained well within the established standards. In 2013, there were three transport interruptions in the Netherlands, which is well below the maximum of nine. An investigation report is drawn up for each transport interruption. Based on the conclusions of these reports, we define points for improvement in order to further minimise the risk of interruptions. In 2013, there were no interruptions to transport in Germany.
We continue to implement improvements to the gas infrastructure. In 2013, this again gave rise to maintenance and renovation projects that require proper coordination with customers and distribution network operators. Thanks to timely communication and consultation about planned activities, we can maintain security of supply for our stakeholders at the desired level.
Expansion of transport capacity
In the past year, we rolled out the last leg of our North-South project (Odiliapeel-Melick), and made a start on the construction of a new pipeline between Beverwijk and Wijngaarden. Both projects were the result of our Open Seasons, during which we asked customers about their long-term transport needs. Customers entered into contracts for additional transport capacity, and on that basis we have expanded our transport capacity.
Another project resulting from an Open Season was the new-build project ExEll in Germany. This concerns a number of extensions of the existing network to compensate for declining production capacity in Denmark, and to meet the increasing demand for natural gas in North Germany. (See also Expansion towards the north).
In order to give customers an opportunity to indicate their capacity needs as of October 2019, GTS started a new Open Season in the Netherlands in December 2013. Based on customers’ responses, we can combine the individual capacity needs of customers and set up an investment programme that is as efficient as possible. If this leads to expansion investments, GTS will aim for a delivery date in the autumn of 2019.
Multi-year replacement programme in the Netherlands
In order to be able to meet future standards in safe and reliable gas transport, GTS launched a large-scale, multi-year replacement programme in 2012. This programme, which is expected to run for 15–20 years, involves the renovation and partial replacement of valve stations, metering and regulating stations, and gas receiving stations. The first dozens of stations were renovated in 2013. We will use the lessons learned from this exercise to improve planning and execution in the coming years.
Gas storage in the Netherlands
On 1 October 2013, on the basis of capacity contracts with customers, we expanded the gas storage in Zuidwending by adding a fifth cavern and a sixth compressor. This expansion was completed well on time and within budget.
Following a fire in one of the transformers at the end of January 2013, we took the precaution of replacing a second transformer and modifying three others. By August 2013, all transformers were operational again.
At the moment, we are examining the feasibility of further expansion. This includes looking at alternative forms of energy storage in caverns, where we focus, for instance, on the storage of nitrogen, hydrogen, high-calorific gas and high-pressure air. The opportunities we see there make us optimistic about the long-term development of Zuidwending.
Stable developments in regulation
On 2 October 2013, ACM published the method decision and the X-factor decision to be used for GTS for the years 2014–2016. In the method decision, ACM determines the regulatory framework for the five statutory duties of transport, balancing, quality conversion, existing connections and new connections. The X-factor decision determines the annual efficiency deduction that GTS must apply to its revenues and tariffs. The design and structure of the method decision is consistent with earlier decisions. This is beneficial to the predictability and stability of the regulatory framework. By introducing a system of revenue regulation, the method decision will also present a robust framework to cope with rapidly changing European rules concerning the provision of services by national network operators. Revenue regulation is a system that is used in most of Europe. It determines the permitted revenues and calculates the difference between the permitted revenues and the actual revenues ex post facto.
In order to ensure the quality of our services in the long term, it is essential that all costs of capital are included in calculating the WACC. However, in its calculations, ACM failed to do this, and set the WACC at 3.6%. For GTS, this may lead to the undesirable situation that it will not be able to earn back its efficiently incurred costs. GTS has filed an appeal against this.
The above-mentioned decisions of ACM may have a large impact on, for instance, the volume of the expected revenues in the regulatory period 2014–2016 and the following regulatory periods. As a result of ACMʼs final decisions, an assessment was carried out of the monetary value of our gas transport network in the Netherlands. This was done by comparing the carrying amount of the assets with the expected revenues, and an assessment was made of the extent to which the carrying amount could be earned back. The carrying amount of the assets was not changed on the basis of this assessment.
Now that ACM has established the method and X-factor decision for the years 2014–2016, preparations will start for the regulatory period from 2017 onward.
In Germany, the system of revenue regulation has been applied for quite some time. The German regulator, BNetzA, has determined the new permitted revenues for the regulatory period 2013–2017. The permitted revenues of Gasunie Deutschland for this period are based on an efficiency benchmark for the year 2010. In 2012, BNetzA determined the cost level, and in December 2013, Gasunie Deutschland was rated as 100% efficient for the current regulatory period.
At the end of 2013, BNetzA started a consultation process to map the effects of revenue regulation including efficiency benchmarking. BNetzA is required by law to make the report of this available before the end of 2014. The adjustments are expected to be carried out in the next regulatory period (as of 2018). At the moment, we cannot yet predict how this will actually affect Gasunie Deutschland.
Based on the decisions of BNetzA with regard to the permitted revenues and the efficiency benchmark, an assessment was carried out of the monetary value of the gas transport network in Germany. Just as in the Netherlands, this assessment did not result in a value change of the assets.
Preparations for the new balancing regime
In 2013, GTS made preparations in order to be able to adjust the balancing regime in 2014. A balancing regime is the method by which the network can be kept at the right pressure, ensuring that, on balance, the same amount of gas is retrieved from the network as is fed into it. The Dutch regime needs to be adjusted, because the European Union wants gas transport between the various countries to be better connected in order to promote cross-border trade. After adjustment, the regime will fit in with those of other countries. One of the new regime’s characteristics is that, at the end of every gas day, any imbalances are settled. In addition, shortages or surpluses in GTS’s network will, in future, be traded on the gas exchange (ICE Endex).
Certification of GTS, Gasunie Deutschland, BBL Company and GOAL
In 2013, GTS, Gasunie Deutschland, BBL Company and GOAL (the network operator of NEL) were certified by their regulators as independent network operators. This certification (a new requirement introduced in the European Third Package for energy legislation) was given by ACM, BNetzA and Ofgem, following a favourable report by the European Commission on the four network operators.
NTA 8120 certification
In all phases of the life cycle of electricity and gas networks, regional and national network operators and regulatory authorities want to prevent irregularities, interruptions and incidents, and manage their consequences. They therefore decided to further develop their safety, quality and capacity management by means of a NTA for asset management. NTA 8120 sets out the requirements that the asset management system must meet, defining in more detail the specific requirements of safety, quality and capacity management. In 2013, GTS started preparations to set up a framework for its asset management in accordance with NTA 8120, and to further professionalise it. The intention is that, in 2014, GTS will receive certification from an independent authority.
Transfer of Gasunie assets to GTS
As of 1 January 2014, ownership of the gas transport network in the Netherlands and the related assets, liabilities and activities were transferred from Gasunie to GTS. This transfer is part of the certification of GTS as an independent network operator.
As a national network operator, GTS will continue to use the services of Gasunie. To this end, GTS and Gasunie have entered into a number of agreements that establish the framework for their collaboration. These include the policy framework that guides the activities to be carried out by Gasunie, so that security of supply, and safe and reliable gas transport remain guaranteed.
Changing gas composition
As a result of the internationalisation of gas flows in Europe, the variation in gas composition in our net is increasing. In addition, the production of natural gas in north-west Europe, including production from the Dutch gas fields, will decline. This has consequences for the user. In the Netherlands, we have two separate gas transport networks, one for low-calorific and one for high-calorific gas. The settings of domestic appliances and much of the industrial equipment in the Netherlands are geared to the relatively constant composition of the low-calorific Groningen gas (G gas). The increasing variation in gas composition affects these settings.
The Ministry of Economic Affairs has asked a number of parties in the market to take steps to give the end-users of gas sufficient time to adjust their equipment, if necessary. For the G gas market there will be a transitional period that will run to 2021 at least. During this period, GTS will ensure that the market in the Netherlands will receive gas with a composition similar to that of G gas.
The Ministry of Economic Affairs has also made a transitional arrangement for users of the high-calorific H gas. This arrangement runs until 1 October 2014, by which time they will have had five years to adjust their equipment. In the Netherlands, approximately 80 companies use H gas, while all other companies and households use G gas.
Due to the constant composition of gas in the Netherlands, there has, until now, been no need to make a party legally responsible for gas quality. However, because of the increasing variety in composition, the Minister of Economic Affairs has announced that this new, statutory duty is to be assigned to GTS. As a consequence of this change in legislation, GTS has been given the task, if necessary, of adjusting not only the Wobbe index but also other characteristics of gas. The requirements for gas will be laid down in a Ministerial Regulation on gas quality (“MR Gaskwaliteit”). This MR is expected to come into force on 1 July 2014.
The consequences of declining gas production are also noticeable in Germany. German production is rapidly decreasing, while demand from neighbouring network operators for fixed capacity at Gasunie Deutschland is increasing. Due to the declining production of low-calorific L gas and G gas, this increasing demand can no longer be covered by L- and G-gas capacity. The technical measures required have already been laid down in the German NEP 2013. In the German energy law EnWG and the German gas industry’s cooperation agreement (KooperationsVereinbarung), it has been established that market conversion from L gas to H gas is needed. The aim is to have a fully converted market by 2030. From that year, G gas will no longer be imported from the Netherlands. Conversion of the first Gasunie Deutschland markets will take place in 2016/2017.
Consequences of earthquakes in the Netherlands
In 2013, the Minister of Economic Affairs published new findings on the link between gas production from the Groningen gas field and earthquakes in the province of Groningen. In this context, in a research project commissioned by the Ministry of Economic Affairs, GTS examined the relationship between the volume of natural gas to be produced and security of supply.
In January 2014, the Minister published his conclusions and the measures to be taken. One of these measures is to limit the volume of gas that can be produced from the Groningen gas field from 2014 up to and including 2016. In 2014 and 2015, production of up to 42.5 billion m3 per year will be allowed, and in 2016, 40 billion m3. In addition, production from the five clusters around Loppersum will be limited to 3 billion m3 per year. These measures will make sure that during periods of high demand, sufficient gas will remain available to meet this demand.
In addition, research has been carried out into whether the potentially increasing force of the earthquakes will increase the risk of damage to the gas transport network. At the moment, it seems advisable to strengthen a number of structures and to replace certain lengths of pipeline. The consequences will be looked into further in 2014.