Gasunie in transit
Gasunie has managed the Dutch gas network since 1963, when natural gas was first produced at Slochteren. In recent years the energy mix has changed, with the focus now more on sustainable energy sources. But Gasunie has maintained its involvement, capitalizing on the key role that gas plays in the current energy transition. The changing strategy of this gas distributor has also had a bearing on the activities of its treasury department.
Gasunie, which is wholly owned by the Dutch government, transports natural gas through more than 15,500km of pipelines in the Netherlands and Germany. In addition to these pipeline systems, Gasunie’s assets comprise hundreds of installations, including one for liquefied natural gas (LNG), an LNG import terminal and facilities for underground gas storage.
Every year, the company transports approximately 125 billion cubic meters of natural gas, equal to about a quarter of Europe’s total gas consumption. As a bona fide gas country, the Netherlands has become ‘Europe’s gas hub’, the central trading place for gas.
One of the government’s key objectives is to make the Netherlands one of the most sustainable countries in Europe by 2020. To limit climate change, the country is currently working on an energy transition: a switch to a CO2 free energy supply.
This means that fossil fuels will increasingly be replaced by fully renewable energy sources, such as solar, wind and geothermal energy, and biogas. Due to this, natural gas, which is undisputed the least polluting fossil fuel, has now been cast in a somewhat less-than-positive light. “You just have to mention energy transition and the level of uncertainty is very obvious,” says Janneke Hermes, manager of corporate finance & risk advisory at Gasunie.
“And there are plenty of givens. But many people don’t have the right information – about the reliability of energy sources, their costs and what they can be used for. Solar panels on roofs have become symbolic of renewable energy, but even if they covered all the roofs in the Netherlands, they could only generate a limited percentage of the country’s energy requirements. So much more needs to be done. The role played by gas is, and will remain, crucial in the energy transition. This will increasingly be renewable forms of gas, such as gas from biomass, or hydrogen that can be obtained from wind energy.
”You just have to mention energy transition and the level of uncertainty is very obvious”
But natural gas also has a role to play, because it can reduce CO2 reduction significantly using it instead of coal in power stations. The big challenges we face are how to connect all the energy lines in the near future and how it should all be organized. It’ll take a lot of time and money and it constitutes a very substantial challenge for the Netherlands and the rest of Europe.”
Gasunie is already involved in a number of innovative projects. “Many impressive projects are already being carried out, by players big and small,” explains Hermes.
“TenneT, for example, wants to harvest offshore wind energy on the North Sea, on a large scale, and our contribution can be to convert the excess electricity into hydrogen and transport it via existing gas pipelines to land, where it can be used as renewable fuel.” Adding CO2 to hydrogen produces methane, which can be introduced to the gas network as a gas.
A further advantage of doing this is that hydrogen, or the gas that it helps to produce, can be stored as a buffer for subsequent energy generation or use. Many industries already use hydrogen in their production processes, continues Hermes.
“Naturally, we are exploring how, with the existing infrastructure in our country, we can optimally exploit and facilitate this fact.”
In addition to its network in the Netherlands, Gasunie also has one in Germany, which also plays a key role in the security of supply of natural gas to the Netherlands. “Our number one strategic pillar is to remain the reliable, safe player in the Netherlands when it comes to gas infrastructure,” assures Hermes. “To this end our focus is very much on the storage of energy, during both the summer and winter and on a daily basis too. In other words, monitoring peaks during the day and deciding how to cope with them. Our second pillar is the facilitation of the gas markets elsewhere in Europe.”
While in the Netherlands gas has fallen out of favor – as a result of the earthquakes in Groningen, for example, and because it’s a fossil fuel – the opposite is true in the rest of Europe. Gasunie’s strategy looks beyond the Netherlands, Belgium and Germany.
“We are looking further afield – the gas market is developing very strongly outside the North European area. The further you venture into Europe the more popular gas seems to be, to the extent that in some regions it’s akin to an emerging commodity.
Thanks to our knowledge and expertise we can help, facilitate and invest in those markets. For example in the construction of new pipelines and networks, and new LNG terminals. I’m talking about countries in which we want to accumulate experience step-by-step, starting off by providing advice and service. Later this can be expanded into participation in a consortium in proportional stakes. We want to build up our presence incrementally.”
According to Hermes, the third strategic pillar focusses on the afore-mentioned energy transition. “We are increasingly and emphatically demonstrating just how important a role we can play in all this. By supporting solar and wind energy, offering gas as a back-up, and making our own products more sustainable, or green.
Green gas, by the way, is the same quality as natural gas. We are working on innovations that should lead to an increase in scale in the supply of green – so sustainable – natural gas.”
Alongside the transport of gas, Gasunie is also focusing on heating networks based on geothermal energy or residual heat. “Together with Eneco, the Port of Rotterdam Authority and Warmtebedrijf Zuid-Holland, the so-called Heat Alliance, we are trying to make optimum use of residual heat produced by the Port of Rotterdam for heating in the immediate region.
”Our range of activities is currently very broad”
We are striving for open access in that market, with all customers and suppliers enjoying access to the infrastructure. Independence has always been a key aspect of what we do; we have no interest in the commodity.
We make it possible for the various players – such as producers, customers, traders – to find one another. Our range of activities is currently very broad, from doing the right things today to exploring what’s possible in terms of tomorrow’s services and facilities and how we can contribute to their realization.”
The energy supply in the Netherlands is strongly dependent on gas. In 2016, a third of all energy in the Netherlands was supplied by natural gas. And due to the reduction of production from the Groningen field as a result of earthquakes in the province, its dependence on countries like Russia and Norway seems to have increased. This is why Gasunie wants the supply of gas to be as diversified as possible, says Hermes.
“Customers find it important to have options; it prevents unilateral dependence. In this respect, southern Europe is gaining in importance because that’s where gas from the Middle East comes in. As a supplier of gas, Russia is still a very important partner for all of Europe, but this only strengthens the argument that LNG could be an excellent way of realizing the desired diversity.”
But just what do all these developments mean for the activities of Gasunie’s treasury? “Having made the necessary investments in the Netherlands’ existing gas infrastructure, we can now generate the kind of cash flow we expected,” insists Hermes.
“Consequently, this will reduce the amount of debt we’ll need to take on. We have a reasonably diverse long-term loan portfolio and once that’s matured we’ll no longer need to refinance the full amount, which translates to a moderation of our financing needs.
For our international activities, however, it’s not yet clear how much funding we’ll need. The same is true when it comes to green gas and supercritical water gasification projects. Relative to our assets, these all represent modest investments, but we don’t yet know how big they will become in future.
Once their success has been proven, we’ll scale up projects like these. In terms of financing requirements, ours are indeed very diverse.”
”If the discussion is about a new biogas hub with several farmers, the dynamics become very different”
That diversity has not escaped the attention of Gasunie’s treasury, while Hermes’ own role has also changed and become more diverse. “Suppose we’re talking about a benchmark loan of €500 million, it won’t be a problem because we’ve done something similar in the past. But if the discussion is about a new biogas hub with several farmers from Twente, for example, the dynamics become very different. We don’t yet have a contingency plan for something like that so we’ll need to be extremely flexible.”
When financing these new, different types of projects, the sums involved are a lot lower, but the same cannot be said about the time the treasury has to invest. “That can sometimes be inversely proportional,” concedes Hermes. “But the contacts are also very different and this calls for a completely different skillset to what was needed before.”
It also means that advice is asked more frequently from within the organization, she acknowledges. “Whereas we initially provided corporate financing, we now also extend loans to the business units themselves. This too calls for a different dynamic.”
The first advisory role played by Zanders in Gasunie’s treasury activities dates all the way back to 2002, says Hermes. “So for me I’ve only known collaboration with Zanders. Back then it included SAP implementation, in which all kinds of instruments had to be configured.
Since then we’ve been in constant contact; whenever the treasury needed support, we contacted Zanders. In May 2016, Lisette Overmars even took on the role of interim treasurer for several months. Our most recent collaboration was the adaptation of our treasury statute, which was necessary because we wanted our treasury policy to be aligned with our new objectives.
In a broader context, Zanders has always proved an excellent sparring partner, one that asks us the right questions and provides the necessary structure for tackling the challenges our treasury faces. It’s what I’d define as an excellent and sustainable collaboration.”.