VNG - well-positioned for sustainable development

VNG expands market shares / German gas sendout recovers following economic crisis / conditions restrict profit

Leipzig, (PresseBox) - VNG - Verbundnetz Gas Aktiengesellschaft (VNG) has held its own in 2010 and once again increased its gas sendout. "Our customer nearness and our competence in the development of innovative products have paid dividends," said Dr. Karsten Heuchert, Chairman of the VNG Executive Board, at the Annual Press Conference for the 2010 financial year held in Leipzig in Wednesday. The annual gas sendout of VNG AG rose last year by 37.3 billion kilowatt-hours (kWh) or 20.4 per cent to a total of 220.3 billion kWh. However, as a result of the continuing natural gas surplus on European markets and increasingly tough competition, it was not possible to match the profit figure reported for 2009. Nevertheless, VNG reported net income of € 59 million.

Dynamic export business - gratifying trend on German markets

"The dynamic export business of VNG together with more intensive activities on European spot and futures markets were key factors in our higher sendout," Heuchert explained. As a result of higher gas deliveries, the sales of VNG AG rose by 11 per cent to about € 5.3 billion. Export deliveries rose by 34 per cent in 2010 and deliveries on European spot and futures markets even increased by 66.5 per cent. Export business has now become one of VNG's mainstays. With deliveries of 10 billion kWh, Poland is the company's largest export market, followed by Italy. In Italy, VNG won a large number of new customers, with gas deliveries rising by 12 per cent to 6.4 billion kWh. Significant success was also achieved in sales activities in Luxembourg, France, Slovakia and the Czech Republic.

In Germany, VNG reported growth in all customer segments, even reaching 21.1 percent in the case of industrial customers. "In order to offer customers individual support to master the challenges they face, VNG has established sales offices throughout Germany. We intend to continue our strategy of local representation in the future in order to provide better and more direct service to customers in the regions concerned. Customer nearness is a key aspect of joint market processing for VNG," said Heuchert, underlining one of the sales strategies of VNG.

VNG has also been successful with the development of new and innovative products and services, responding to the needs of municipal utilities in the fields of purchasing and portfolio management. "For example, we are working to expand fields of application for natural gas and are cooperating with market partners to bring energy-efficient technologies to market maturity. VNG sees the combined generation of electric heat and power in the domestic sector using micro-cogeneration plants as another key element in shaping domestic and commercial energy supplies in the future," Heuchert stressed during the Annual Press Conference.

Diversification of purchasing portfolio

"VNG AG maintained its position as Germany's third-largest natural gas importer with an increasingly diversified international purchasing portfolio," Heuchert continued. In total, VNG purchased 213.9 billion kWh of natural gas in 2010, representing an increase of about 13%. Heuchert explained: "Long-term natural gas purchase contracts continue to form the backbone of European gas purchases and the supply of gas quantities required by customers. One of the key challenges was and still is to adapt these contracts to current market conditions." In this context, VNG is engaged in an intensive dialogue with all its suppliers. 32% of the gas purchased by VNG in 2010 came from Russia, 18% from Norway and 19% from German suppliers. 31% of the gas purchased by VNG AG came from European spot and futures markets, which have almost tripled their share since 2008 and have made a considerable contribution to making the purchasing portfolio of VNG more competitive. Framework agreements for the purchase of liquefied natural gas (LNG) were also concluded.

VNG once again took a major step towards developing its own production capacity. VNG Norge AS now holds shares in 24 licences in Norwegian waters and the company is the operator under four of these licences. In 2010, the Danish subsidiary VNG Danmark ApS was also founded and was already able to announce its first success, in the form of its participation in the Solsort oil find on the Danish Continental Shelf. "We are convinced that investments in our own gas production will deliver sustainable long-term contributions to our net income, Heuchert said.

Reinforcement of biomethane sales

The marketing of biomethane is also being intensified. Sales of this especially climatefriendly source of energy have been boosted by targeted marketing. In this segment, the VNG range includes delivery contracts for additions to existing purchasing portfolios and for power generation. The company has also operated an online trading platform for biomethane since October 2010. However, Heuchert made the following appeal: "In order to meet the climate protection goals stated by the German government, it will be necessary to open up the heat energy market more to biomethane."

Outlook

In view of the current discussion on energy policy, Heuchert said that VNG was very wellpositioned as a natural gas specialist: "Natural gas is a reliable, environmentally compatible source of energy that will be available in the long term. It is therefore the ideal partner for renewable energies. We are convinced that it can play a central role in the energy mix of the future and even improve its position." However, it remained to be seen what effect the renewed discussion of atomic power would have on the operation and expansion of gas-fired power stations. Heuchert added: "If the end to atomic power is to be accelerated, gas-fired power stations will become increasingly important. VNG will be in a position at all times to make a significant contribution to meeting possible additional demand for natural gas and to providing the flexibility needed in gas supply for power generation."

In the long term, VNG will continue to have four cornerstones - trading and services, storage, exploration and production, and gas transmission. "The main challenge will be to ensure that natural gas remains competitive in all sectors of the market and to adapt longterm contracts to current market conditions," Heuchert said. In future, selected markets outside Germany will also remain a significant source of growth. He underlined the commitment of VNG to establish CO2-neutral biomethane more strongly on the market as a supplement to natural gas. VNG will continue to expand its storage business in line with demand together with partners. Gas transmission also remains a mainstay of the VNG Group. In connection with regulation, VNG will continuously optimise the gas transmission business operated by its subsidiary ONTRAS and make the investments required.

"Against the backdrop of the considerable changes in gas markets, VNG continues to be well-positioned along the value stream," said Executive Board Chairman Dr. Heuchert. "VNG is and will remain a specialist in natural gas purchasing and especially in marketing."

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