Natural gas in the Netherlands Wim van t Hof Gas Coordinator - Energy Market Directorate
Overview of presentation The Netherlands: a gas country - facts and figures - outlook gas production - major players Ambition Dutch government: gas hub of Northwest-Europe - challenges and actions - added value - role of government Putting the gas hub into practice A. Gas infrastructure developments B. Development of the gas market C. The regulatory environment (national and EU) D. Regional cooperation 2
Gas in the Netherlands: facts and figures Dutch gas balance: - production: 85 bcm/y - export: 60 bcm/y - import: 20 bcm/y - consumption: 45 bcm/y Exports: Germany, Belgium, Italy, France, UK and Switzerland. Imports: Norway, Russia and since mid 2011 LNG. Consumption: - share of gas in energy consumption: 40%; - 60% of electricity generated by gas-powered installations; - almost 100% of households connected to the gas network. Consumption split: - gas distribution companies: 23 bcm (48%) - industry: 16 bcm (33%) - power plants: 9 bcm (19%) Remaining reserves: 1,250 bcm (950 bcm in Groningen field). - production will continue for decades; - shift from net exporter to net importer around 2025. (New development: unconventional gas??) 3
Gas production - history and outlook 4
Major players on the Dutch gas market Exploration and production: NAM, Gaz de France, Vermillion, Wintershall, Transport: GTS (transmission system operator), 10 (regional) distribution system operators, BBL Company (interconnector NL => UK). Gas storages operators: NAM, Taqa, Eneco, Gasunie,... Gas shipping, trading and sales: GasTerra, E&P-companies, retail companies, financial institutions, Gas exchange: APX Endex (spot and futures market). Retail companies: Nuon, Essent, Dong, Delta,. Large industries (steel, chemicals): Tata Steel, Dow Chemicals, DSM, Regulator: Energy Chamber of the Dutch Competition Authority (NMa) NB-1: Dutch government participates for 40% in almost all E&P activities through Energy Management Netherlands (EBN; 100% state owned). NB-2: Dutch Gasbuilding : long lasting relation between the Dutch State and Shell and ExxonMobil with regard to the Groningenfield (exploration, production and sales). 5
Ambition Dutch government: gas hub of NW Europe Position the Netherland as the gas hub of Northwest-Europe Rationale - I: gas is important for the Netherlands (security of supply) Rationale II: competitive advantages (economic benefits): own gas provides a sound basis; large gas grid with numerous interconnections; good conditions for gas storage (depleted fields; salt caverns); located at open sea: attractive for LNG; liquid market (TTF Title Transfer Facility) with a well developed spot market and gas exchange. 6
Dutch gas hub strategy: interconnections and markets Promoting investment by/and building on local production and skills 7
Dutch gas hub strategy: challenges and actions Timely availability of transport capacity (interconnections); expand options for delivering flexibility (replace production capabilities): - additional storages (depleted gas fields; salt caverns): - new flexibility products on (spot) market; diversification of sources and routes (LNG; new pipeline connections with Norway, Russia,.). Create favorable climate for business and infrastructure investments; improve the functioning of the market: market alignment in Northwest Europe first step towards integration of NW European gas markets; development of legal framework (third package); stimulate trade at TTF gas hub to increase market liquidity and create new sources of flexibility. 8
Dutch Gas hub strategy: added value A successful strategy will lead to: 15 new production wells per year; 13 bcm/year additional transit; 1 additional gas storage facility; 15 bcm additional LNG; yearly growth of TF trade: 30%. Investments/revenues: necessary market investments: 7.7 billion; revenues until 2020: - additional economic activities: 21.4 bln. in goods and services; - 136,000 additional full time man years. The gas hub strategy can and will pay off, certainly if companies and government team up if and when possible. (Source: Brattle Group; 2010) 9
Dutch gas hub strategy: role of government stimulate gas exploration and production: small fields policy, potential of unconventional gas and also green gas; strategic management of the Groningenfield: Groningenfield as swing supplier; encourage investments: networks, storages, LNG-terminals; streamline permitting procedures (one-stop shop); stimulate functioning of the market (liquid hub; new balancing regime; quality conversion); position gas in the future energy mix: back-up fuel for renewables; gas is cleanest fossil fuel. legislator and regulator: stable regulatory regime; monitoring, enforcement. gas security of supply. Create opportunities and a sound and stable environment for private sector investments. Position the Netherlands an attractive place to deliver and trade gas. 10
Putting the gas hub into practice A. Gas infrastructure developments B. Development of the gas market C. The regulatory environment D. Regional cooperation 11
A. Gas infrastructure Total length of transmission network: 12,050 km. Entry exit system with 50 entry and 1,100 exit points. Number of interconnection points: 25. GATE LNG-terminal operational mid 2011: throughput capacity of 12 bcm/year (can be expanded to 16 bcm/year). Gas storages Grijpskerk, Norg and Alkmaar. Total working volume: 5 bcm. Four salt caverns Zuidwending (working volume 4 * 50 mcm). More caverns under construction. Ten caverns in Germany connected to the Dutch transmission network. Total working volume 1.5 bcm. New underground storage under construction: Bergermeer (working volume 5 bcm). Quality conversion facilities in operation to convert high calorific gas to low calorific gas. 12
A. Gas infrastructure: gas grid of GTS 13
A. Gas infrastructure (investments in transportation) GTS obliged to have an open seasons every two years (provision in Dutch Gas Act). Allows market parties to indicate their need for additional transport capacity (inland as well as across borders). Since 2005 GTS has held three open seasons: Period Project Additional capacity Total costs (mln. ) 2005-2011 1st open season Entry: 30 bcm/y Exit: 13 bcm/y 2007-2013 2nd open season Entry: 25 bcm/y Exit: 25 bcm/y 1,070 546 2010-2014 3rd open season (Dutch part) Entry: 10 bcm/y Exit 20 bcm/y 495 14
B. The Dutch gas market: the gas hub TTF TTF started 2003: virtual point in gas grid where ownership of gas is handed over. Operated by GTS. Supports OTC, spot market and futures trading through APX-Endex. TTF price also used on other trading floors (Germany EEX). March 2010: ICE launched natural gas futures on TTF. Can be used by registered shippers/traded who pay a license fee. Possible to create a balance relation whereby the amount of transferred will only be determined after the transfer has taken place, on the basis of the allocation of the receiving shipper. Volume developments 2003 now: traded volume net volume churn 2003 2.5 bcm 1.5 bcm 1.8 2008 65.2 bcm 20.2 bcm 3.2 2010 114.8 bcm 33.8 bcm 3.4 2011 163.6 bcm 38.3 bcm 4.3 TTF largest hub in continental Europe. TTF same rating as NBP in ICIS Heren Tradability Index (08/2011). 15
B. TTF development: traded and net volume/month 16
B. TTF development: daily volumes + active parties 17
B. Development of TTF in a European context Oldest hub: NBP (UK); followed by Zeebrugge (B) and TTF (NL) Recent developments: Gaspool and NCG (D) - both attract customers from Pol and CZ because of cheaper gas then oil-indexed contract supplies. In Q4 2011: delivered volume on NWE hubs 46 bcm (= 60% of gas consumption in involved countries (VK, B, NL, D, DK, Fr, It, A)) Delivery point of a number of long term contracts has been moved to a hub => increases flexibility for both buyer and seller. Convergence of prices between hubs: TTF, Zeebrugge (Belgium) and NBP (UK). However EU market compared still quite divers and no uniform picture due to: - role of long-term supply contracts; - relative low number of producers; - differenced in size of market areas. A liquid market is on its way in the (Northwest) Europe, now it is time to take the next steps. But: does NOT mean the end of long term contracts! They will remain to play a role (security supply security demand) however price concepts, delivery points, etc. may change. 18
B. Gas hub development in NW Europe 19
B. Gas prices in NW Europe during cold spell 50,000 45,000 40,000 35,000 30,000 25,000 20,000 15,000 ZEE EUR/MWh TTF EUR/MWh NCG EUR/MWh Gaspool EUR/MWh PEG EUR/MWh 10,000 5,000 0,000 20 20
C. The Dutch regulatory environment Main/core legislation: Mining Act: sets out basic terms and conditions for exploration and production (including storage). Gas Act: sets out basic terms and conditions for the functioning of the gas market. Secondary legislation: Ministerial Decision - delivering gas to small consumers (< 40 m 3 /hour). Ministerial Decision - Security of Supply Gas Act. Ministerial Regulation - Quality aspects network management electricity and gas. Ministerial Regulation - Tariff structures and conditions gas. Gas codes. 21
C. Liberalisation of the Dutch gas markt Dec. 1997: first gas EU directive (into force mid 1998): TPA for network access free choice of shipper for eligible customers separate accounts for generation, transportation, distribution, June 2003: second gas EU directive (into force mid 2004): regulated TPA for network access commercial customers can choose their supplier in 2004, households to follow in 2007 legally and managerial unbundling of incumbents creation of NRA s Sometimes painful and cumbersome processes. Gas market reform 2011: new Gas Act: stimulates exchange of gas on the TTF; new balancing regime: increased trade on TTF; increased availability of short term flexibility products on the TTF, improved market liquidity. And: the Third Package which came into force March 2011. 22
C. Implementation Third Package: main issues Effective unbundling of transmission networks Level playing field Stronger powers and more independent position for national regulators System of EU (framework) guidelines and network codes Creation of EU Regulatory Agency (ACER) and Cooperation of network operators (ENTSOG) 23
C. Implementation third packages: Dutch choices Unbundling: choice for ownership unbundling: - more efficient: network companies become pure network companies; - equal network access for all parties involved; - secured investments in quality and scale of the network; - improvement of transparency; - unbundling offers possibilities for mergers and acquisition for Dutch companies, but prevent costs for networks; - networks remain in public hands: safeguarding public interests. By the way: Dutch unbundling Act already into force July 2008. Level playing field: - background: political influence by mergers/acquisitions in energy sector; - government has to be notified about intended take-over of Dutch producer or production installation; - will be judged on risks for public safety and security of supply; - government intervention need approval of the European Commission. 24
C. Implementation Third Package: guidelines and codes Aim: - non-discriminating rules for access to transmission networks - non-discriminating rules for access to LNG and storage facilities; - well functioning and transparent wholesale market: harmonized network access for cross border exchange of gas.. ENTSOG to draft the network codes. Have to be in line with the non-binding framework guidelines drafted by ACER. Final approval through comitology (i.e. member states) Topics: capacity allocation, balancing, interoperability, tariff structures,. Possibility for European Commission to draft and propose binding guidelines (without (direct) involvement of ACER and ENTSOG): - also to be adopted through comitology; - current topic: congestion management. Network codes and Commission guidelines take priority over national arrangements (at least for cross border issues). Important for member states and other stakeholders to be actively involved. 25
D. Regional cooperation Pentalateral Gas Platform: - ministerial initiative of G, Fr, B, Lux and NL (EC participates as observer); - topics: (1) markets and competitive issues; (2) security of supply (implementation of new regulation). Gas Regional Initiative Northwest: - regulators of G, Fr, B, Lux, Ire, UK, DK, Swe, Nw en NL; - topics: (1) transparency (monitoring implementation EU guideline); (2) capacity related issues; (3) development and (early) implementation of framework guidelines and network codes through pilots and pre-comitology meetings with governments. Other stakeholders (notably TSO s) actively involved in both initiatives and increased cooperation between the initiatives. 26
Thank you! Any:?? 27