Focus on efficiency and costs

10-11-2015

Commercial director Robert van Rede: "We have to make choices"

The changes GasTerra is currently facing, as well as the changes it is experiencing itself as a result, have had an impact on the company’s strategy. We asked commercial director Robert van Rede what impact the recent developments have had on the policy and course of GasTerra and its relationships with its customers.

What will change at GasTerra commercially and what will remain the same?

To start with the last question: our mission has not changed. GasTerra was set up by its shareholders to add as much value as possible to Dutch gas. Whether we sell one or 80 billion m3 doesn’t matter. The strategy we have to follow in order to realize this, has changed, however. The production decisions by Minister Kamp are forcing us to have a much more accurate planning than in the past. Before, we had a 10-year ceiling. Now, we are faced with production limits that have a validity of just six months. This makes quite a difference.

The current situation in Groningen may be new, but of course GasTerra has known for a while that the production potential of the Groningen Field, which is 50 years old, is deteriorating.

That’s correct. We have realized for some time that we would have to gradually reduce the volume of gas sold, but this process has now been stepped up a gear. We have prepared ourselves, taking the commitments to our customers as a guideline. It’s key to achieve the optimum balance between portfolio – the total of our sales commitments – and supply. Our long-term contracts will be ending when the Groningen Field is in its final phase. Presently, we primarily look at how we can optimize our portfolio and how we can best manage the related internal costs. To this end, we have to make choices. Portfolio changes, the focus on costs and efficiency  and finally  strong competition in the market cause that contracting small customers is no longer cost effective.   Only for the buying and selling of green gas we make an exception.

Has this change in course also had consequences for the GasTerra organization?

Yes, optimization, streamlining and more efficiency; that was the motto for the reorganization program we recently concluded. We now have, for instance, one sales team for the domestic market and one for the foreign markets, where we used to have a total of five. We have one back office instead of three. There will be fewer people working at GasTerra. Staff will be shrinking by 20 percent in the next few years. Of course, we will keep all our customers informed of any personnel changes that are relevant to them.

Has the production ceiling had special consequences for the commercial strategy?

Certainly. One of the consequences is that we have to purchase gas more often on the Title Transfer Facility (virtual marketplace for natural gas, ed.) to stay within the production limits. What makes it complicated, is that when the minister will be taking the decision on the production limits, we will have already signed contracts for future delivery. Our customers sign contracts for up to four years. This forces us to work differently than we did before. The role and coordination of planning and portfolio management has become much more decisive. However, if this is not sufficient, GasTerra is able to appeal to the market. More than before, we have to make short-term purchases. Because an efficient gas hub, the TTF, was developed in the last 10 years, and because the Netherlands has implemented the roundabout strategy, enabling more gas to be transported to the Netherlands, GasTerra and the market are ensured of a reliable gas supply.

And what about safety in the gas production area in Groningen?

Of course, safety is extremely important. We should not underestimate what many people in Groningen are going through. It remains a difficult dilemma between safety and production. But we assume unconditionally that the minister takes balanced decisions, taking into account the basic principle safety but also security of supply and the value of the product. He has all the available information at his disposal. It is GasTerra’s role to emphasize the social and economic importance and the value of natural gas, now and in the future. There is still approx. €150 billion worth of gas in the ground in Groningen. We can really use that money and the gas, for our prosperity, our well-being and, not to mention to make our energy management more sustainable. We still have a long way to go until our energy supply is 100% sustainable. Groningen gas can still play a significant role in this transition. But to enable the Groningen Field to fulfil that role, the safety problem in the extraction area has to be properly dealt with. The Minister, the State Supervision of Mines, NAM and many other institutions are working on this. GasTerra is helping them in this decision by offering its knowledge of the market.