What will we notice in the Netherlands of the discontinued gas supplies by Russia?

Published on: 9 June 2022

Current issues in the field of economics, (responsible) investments, pension, and income: an APG expert gives a clear answer to the question of the week. This time: Marco van Eijkelenburg, Senior Portfolio Manager Commodities, on the question what the Netherlands will notice of Russian Gazprom discontinuing gas supplies to Dutch GasTerra.


The reason that the Russian state-owned gas company no longer delivers to the Dutch gas distributor as of June 1st is that it does not want to pay the bill in Rubles, something that President Putin is demanding. Poland, Bulgaria, and Finland have already been confronted with the Russian sanction. According to Environment Minister Rob Jetten, the decision by Gazprom will not have consequences for Dutch households. But not everyone is convinced of this. Mijnraad, an independent advisory body of the government warned that a gas shortage could have “very large social consequences”  The international energy agency IEA also warns for an energy ration.


Marco van Eijkelenburg points out that GasTerra already has alternatives for the Russian gas. “I therefore do not think that this action by Gazprom will have major consequences for the Dutch gas reserve, although GasTerra will have to pay more for those alternatives than for the Russian gas. With its gas roundabout [infrastructure interchange for transport and storage of natural gas], the Netherlands has a favorable position with respect to the gas supply. As a direct consequence of the Russian invasion in Ukraine, there will be an accelerated scale up of capacity to import liquid natural gas (LNG). Gasunie, the state-owned company that takes care of the Dutch natural gas transport has rented two floating LNG facilities to expand the new LNG terminal at Eemshaven.”

This terminal, with an annual capacity of 8 billion cubic meter, will become an important supply line, Van Eijkelenburg explains. “We use approximately 40 billion cubic meter natural gas in the Netherlands per year, of which approximately 15% comes from Russia. If needed, there is always the gas field below Groningen, although that is politically sensitive. If there is a shortage of gas this coming winter, the government will first disconnect large industrial users from gas so that the delivery certainty for households and specific essential social services, such as hospitals, can be guaranteed. So, the Dutch consumer does not have to worry about the delivery certainty; it does however have to worry about the gas price. Especially when there is a variable contract and a cold winter.”

That uncertainty about future gas deliveries can already be felt in the price

However, that higher price is not specifically caused by Gazprom discontinuing its delivery to GasTerra, Van Eijkelenburg emphasizes. “The increased gas costs have more to do with the fact that the entire gas supply from Russia is decreasing, partly because European countries want to move away from Russian gas, and partly because Russia is demanding payments in Rubles. The developments surrounding GasTerra and Gazprom are therefore part of a wider trend that is happening, and that brings along a lot of uncertainty. And that uncertainty about future gas deliveries can already be felt in the price. Directly in the gas price, as well as indirectly in the prices of goods. If the situation in Ukraine escalates further, with all the associated consequences for the Russian gas deliveries to Europe, the gas price can increase even more.  But it is also possible that Gazprom will discontinue even more deliveries, but that there is a price decrease after all. Simply because the current price already accounts for a negative future scenario.”


Gas supply
So the relatively high price we currently pay for gas is partly because the future uncertainty is already included in the price. What is striking is that the Dutch gas reserves are filled less than 40 percent. The government wants to replenish this to 70 percent, but the Mijnraad advises to do this to 100 percent. According to Van Eijkelenburg it is indeed wise to replenish the Dutch gas reserves as much as possible in the coming months before winter starts. “You have to take into account the worst possible scenario where more Russian gas supplies to Europe are discontinued in the short term and that we will have a cold winter. If you have the option now to best prepare yourself for this, you should do that. Europe will only import less Russian gas in the coming years, so the extra natural gas that was purchased will come in handy.”

We should regard Gazprom’s discontinued gas delivery to GasTerra as a small step in the larger movement to move away from Russian gas. “By definition, such a sudden boycott is a disruptive process and will never be gradual. Because of this, the predictability of supply and demand will decrease, and the prices will increase because of the increased uncertainty. But the delivery of gas to consumers will not be compromised, partly because of the increased expansion of the Dutch capacity to import liquid natural gas.”