Energy Company ENGIE gives distorted picture of gas extraction in Groningen

12-09-2016

The French energy company ENGIE wants to purchase less gas from GasTerra and claims GasTerra does not want to cooperate. The company claims that a lower contract volume leads to a lower required production ceiling. This reasoning is incorrect.

The total demand for Groningen gas on the North-Western European market is determined by the actual consumption of gas, not by contracted volumes. Gas transport company Gasunie Transport Services (GTS) has calculated that to guarantee the security of supply in an average year, 24 billion cubic meters of gas have to be extracted. What GasTerra trades, does nothing to alter this figure. By suggesting otherwise, ENGIE gives a distorted picture of the way in which the demand for low-calorific Groningen gas is determined.

GasTerra believes ENGIE is using the earthquake problems in Groningen for its own financial gain. This state of affairs gives rise to many questions, in particular in Groningen. The most important ones are answered below.

Why is ENGIE publishing this and why now?

GasTerra and ENGIE have been negotiating about an adjustment of the long-term contract for the supply of natural gas to the French energy company for some time. At the time of conclusion of the contract in 2009, ENGIE, at its own request, contracted more gas than it is now claims to need, at a price which it currently feels is too high. GasTerra is more than willing to discuss an adjustment of the contract, but in the regular renegotiations, GasTerra and ENGIE could not agree on the terms. Currently, ENGIE is trying to get its way by using the public debate on the extraction of gas in Groningen.

Why does a lower contract volume not lead to a lower demand for Groningen gas and, as a result, a lower production ceiling?

The need for the low-calorific Groningen gas (L-gas) is ultimately only determined by the reduction in the number of end users, such as the number of households in the Netherlands and abroad, not by agreements between market parties. The end users determine the total demand for this product, and therefore the required production from Groningen. Commercial contracts between market parties, such as the export contract between GasTerra and ENGIE, are therefore not relevant for the demand for L-gas. 

The Minister of Economic Affairs determines how much L-gas can be produced in Groningen. He bases his assumptions on the safety requirements and the security of supply, which are determined by the physical demand by L-gas users. The recent draft decision is no exception to this. The current physical demand by L-gas users is calculated by GTS on the basis of a comprehensive study. This study shows that a production volume of 24 billion cubic meters is required to provide in the needs of an average year. Only the system operators at home and abroad, such as GTS, have a total overview of the demand for L-gas. The market parties, such as GasTerra and ENGIE, only know what their own sales volumes are.

The required quantity of Groningen gas is determined by the reduction in the number of end users, not by agreements between market parties

How does this work in practice?

Parties contract gas, for example with GasTerra, and then deliver this to their customers, wholesale clients or consumers. If a party has contracted too much or too little gas, this party can sell or buy the difference on the gas exchange. Surpluses can be purchased by customers who cannot sell on the gas or supply it to end consumers directly. In this way, no more gas is produced in Groningen than needed.

No more gas is extracted in Groningen than needed

ENGIE claims that it is forced to convert the excess gas into HCV gas. Is that true?

Absolutely not. As already said: if a party has contracted too much or too little gas, this party can sell or buy the difference on the gas exchange. It is also true for ENGIE. This is the usual practice for all parties on the gas market.

Is low-caloric gas being converted into high-caloric gas at the moment?

The network operators (and not the market parties such as GasTerra and ENGIE) are responsible for the conversion of L-gas into H-gas, and also report on this conversion. Reports by the gas transporters such as the French network operator GRTgaz show that the conversion of L-gas to high-caloric gas takes place in negligible volumes, and only to balance out the gas network.

According to ENGIE, L-gas needs to be converted into high-caloric gas because it is supplied to the wrong location.

This allegation by ENGIE is also incorrect. The gas is supplied to a location where the gas can easily be transported to the Dutch gas exchange, and this is often done by market parties, as is shown by the GTS data. ENGIE can easily sell any excess gas on the free market, where it is bought by parties who need this gas for themselves or for their customers. In this way, there is exactly enough gas in the system, not too much and not too little. All market parties who are active in the gas exchange work this way.

ENGIE can always sell the gas on the Dutch gas exchange