Interview: GasTerra CEO Gertjan Lankhorst
The economic slowdown has forced Dutch gas incumbent GasTerra to step up its activities on the TTF as well as others of Europe's gas hubs, CEO Gertjan Lankhorst, said in the first part of an interview given to ICIS Heren.
"Under the long-term contracts you have with buyers, there is a minimum offtake. You have to find other outlets for that gas [that buying companies nominate not to take] if you still want to sell it. So we have definitely tried to sell more gas on the markets, on the trading platforms," Lankhorst said.
The confirmation comes at a time when other major suppliers of gas to Europe have also run into challenges arising from the amount of flexibility that is written into their long-term contracts with European buyers.
With spot prices having been driven below long-term contracts in the aftermath of the global recession, times became harder for producers, with Algeria's Sonatrach and Russia's Gazprom and Norway's Statoil all being forced to the negotiating table to redraw contracts.
In October 2009, Sonatrach admitted feeling the pinch in terms of gas sales as a result of the global slowdown (see ESGM 15 October 2009), while Gazprom in March confirmed it was discussing linking some sales to European hub market prices (see ESGM 3 March 2010).
Lankhorst confirmed the typical minimum offtake level was 15% below the agreed take-or-pay volume, but would not give the bracket of the highest and lowest take-or-pay ranges. The percentage of 15% has been given by other sources to describe the element of flexibility in a given long-term contract.
Regarding specific contracts, Lankhorst would not go into detail, but he admitted that the extension of GasTerra's long-term gas supply deal with Germany's E.ON in 2008 (see ESGM 18 December 2008) had included some element of renegotiation.
Changed priorities
GasTerra's activities have changed considerably in just a few years, since liberalisation first got underway in the Netherlands
"Before liberalisation, there were long-term contracts on the supply side and long-term contracts on the sell side," Lankhorst explained.
"Liberalisation has drastically changed the local Dutch market, because there's practically no room for long-term contracts. On the whole, we have a whole portfolio of contracts that are one year, two years; the longest are three years or something like that. So all long-term contracts were abolished and replaced with short-term contracts. In the international market - our export portfolio - not much has changed in that respect; it is still based on long-term, take-or-pay contracts."
With the reduction of long-term contracts, the TTF has been a direct beneficiary, in a way that was calculated to be the case when the market was first liberalised. "A new development of the past few years is the development of the TTF, which has become a very interesting market as well," he said, explaining that in 2005 GasTerra had sold 1.1 billion cubic metres (Gm³) of gas at the hub, but by 2009 this had grown to 14Gm³.
"When you have a market for all kinds of short-term products you need more people, more deals, more deal-capturing so that is something that has influenced the organisational structure of our company as well.
"Three years ago we created an optimisation division that was looking at what we do with these opportunities on the short-term market, how we can make the optimum use of our portfolio with our capacity, with [the] flexibility in our long-term contracts. Then you have customers that don't use maximum volumes and then you can sell that to the short term market, so that's had a lot of implications for us."
Don't call it 'demand destruction'
Perhaps in an attempt to put a positive spin on the ramifications of a massive cut in gas use in the Netherlands, the UK and the rest of Europe where GasTerra is active, Lankhorst explained that he is keen to avoid describing this as a negative issue.
"I don't like the term 'demand destruction'. One of the best ways of doing something with regard to climate change was the recession, because it definitely brought emissions down, but if you talk about 'demand destruction' it seems very negative. Of course, demand in the European gas market dropped by 7-8% in 2009, compared with 2008. We have felt that as well."
Indeed, he explained, with customer demand having fallen steeply, the relevance of flexible traded markers such as the TTF were thrown sharply into focus. "If you look at our entire portfolio, we have also sold a lower volume in 2009 than 2008, but we have compensated some of [our] long-term contract losses on the trading platforms." He was reluctant to discuss volumes, however, until the company's annual results were published in April.
BBL Pipeline
Along with its home market of the TTF, GasTerra is also most active on the UK's NBP. This belies the fact that although officially there is no actual reverse flow through the Netherlands-UK pipeline, the BBL, GasTerra has been able to make significant use of this piece of infrastructure, especially through its deal with Centrica, a ten-year contract signed in 2004 that started when deliveries through the BBL began in 2006.
"That contract with Centrica is a non-renegotiable 10-year contract based on prices at the NBP. So there's not much evolution [in terms of contract renegotiation] there. Indeed, through the BBL pipeline we are present at both TTF and NBP. We can try to optimise, of course, if there's a price differential there can be interesting opportunities for us."
In other words, he said, despite ongoing - and as yet unsuccessful - plans to commercialise a non-physical reverse-flow service through the BBL by BBL Company, this was already working successfully in a non-physical reverse flow capacity. These were planned to start on 1 September 2008, but still have not been given the go-ahead by British and Dutch regulators, Ofgem and EnergieKamer.
"Through the BBL I think there is [already] non-physical reverse flow at the moment. Because that's what we do, such as when the price situation means it's cheaper to buy the gas on the NBP, we can do that. And that is, I think, non-physical reverse flow. I don't know who else is using the BBL at the moment; I think there are other shippers that use the BBL at moment as well. But I don't know the nature of their contracts. I know there is no physical backflow."
He clarified this meant that the company was free either to use the BBL to acquit its duties to supply Centrica, or to source from the UK's NBP.
"There isn't a molecule clause, no. It doesn't have to be Dutch gas that we supply to Centrica."
Although the deal is not renegotiatable, he conceded there was always a chance to meet and reconsider terms, as other producers have been doing on their long-term contracts. "If you are partners, you can always talk but there's no obligation for either party to make any move. If you find new circumstances within the situation, you would be foolish not to [do something]." RS
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