Ukraine war as a turning point for VNG
VNG: "The Ukraine war marks a turning point for VNG," said Ulf Heitmüller, the visibly tense VNG CEO, opening the company's annual press conference. VNG, like probably no other energy company at the moment, was linked in partnership with Russia and Gazprom. These partnership relations went well beyond mere gas supply relationships. Together with Gazprom Export, VNG supported the founding of the German-Russian Raw Materials Forum in 2006 and has played an active role in shaping it in recent years.
Almost all joint activities with Russian partners were discontinued with the start of the war. Exceptions are gas supply relations and a joint storage project in eastern Germany. VNG and Heitmüller as a person are among those from whom the German government receives intensive advice in all its moves to break away from Russian natural gas. Heitmüller was also in Qatar with Economics Minister Robert Habeck to explore the possibilities of short- and medium-term LNG supplies from the sheikdom.
Against the background of his knowledge of the gas industry situation, Heitmüller warns very clearly against a short-term embargo on Russian natural gas due to the economic consequences, as Russian volumes cannot be replaced in the short term. He also believes that an end to Russian natural gas supplies as early as 2024, as some representatives of the German government are calling for, is unrealistic. VNG is in talks with Norwegian companies about additional gas supplies, but in the short term larger volumes can only be procured in global LNG trading in competition with other demanders. This has implications for prices and availability.
Germany and Europe cannot do without natural gas in the short and medium term
Heitmüller also emphasized that the Federal Republic, as well as Europe, cannot do without natural gas in the short and medium term, as substitution processes take time. Furthermore, he said, molecules will continue to be highly relevant for energy supply in the future, which is why a transformation to green gases is necessary. Specifically, to support this transformation, Heitmüller called on the German government to adapt the national hydrogen strategy and to quickly present the announced biomass strategy: "In doing so, we must rethink partnerships with a high degree of openness to technology and a willingness to compromise," Heitmüller said, adding that "transformation compromises" are needed instead of overregulation. "Stop talking, start walking," must become the motto for accelerated implementation of the energy transition, he said.
VNG will adjust its corporate strategy. Currently, the company still purchases around 100 TWh of Russian natural gas. For 35 TWh, the contract expires at the end of the year; for 65 TWh, there is a contract until 2030, which will also be fulfilled if geopolitics allow it. Asked whether the announcement by Russian President Vladimir Putin that he would only accept payments in rubles would call these supplies into question, Heitmüller said what this meant was currently being clarified jointly by all companies that purchase Russian gas and the German government. For historical reasons, VNG does not purchase part of its volumes from Russia directly from Gazprom Export, but via Wintershall Erdgas Handelshaus (WIEH), a subsidiary of Gazprom Germania (GPG). For this reason, among others, VNG is directly affected by the fiduciary management of GPG by the Federal Network Agency. Heitmüller welcomed the move and stressed that he had great confidence in the Federal Network Agency.
Gas procurement to be further diversified
VNG intends to further diversify its gas procurement as part of the strategy adjustment. In 2021, 196 TWh were sold to municipal utilities and industrial customers, almost 25 percent more than in 2020, in addition to sales to household and commercial customers of 6 TWh (2020: 5 TWh) and 560 TWh of trading volumes, almost 30 percent more than in 2020. The procurement of LNG is to be tackled at pace in order to further diversify the procurement portfolio to supply customers. But although Heitmüller was in Qatar with Habeck, LNG trading and procurement is handled by the trading unit of VNG parent EnBW. A team was set up there a few years ago to trade LNG. EnBW recently announced that capacity will be booked at the planned terminal in Stade. Commenting on his visit to Qatar, Heitmüller simply said it was good that the German government had played the door-opener.
VNG also wants to take steps to phase out natural gas more quickly. Exactly what this will look like remained open at the annual press conference. VNG has been expanding its portfolio of biogas and biomethane plants through its subsidiary Balance for around five years. At the end of 2021, 38 plants were in operation. The firing thermal capacity totals 157 MW. According to Hans-Joachim Polk, the board member responsible for technology, this makes VNG one of the bigger players in the segment. However, the segment has so far only contributed a low single-digit million euro amount to the overall earnings before interest and taxes (EBIT). Biogas is one of the main areas of investment. However, the planned amendment to the Renewable Energies Act (EEG), which is currently in the legislative process, could put the brakes on development in the segment. The use of biomethane is to be limited to peak-load power generation, so-called "peakers" that run for less than 1,000 hours a year: "The amendment needs to be reworked, we would have liked more freedom," Polk said. The various hydrogen projects in which VNG is involved are not yet contributing to results. In addition to the "lighthouse project" Energiepark Bad Lauchstädt, for which VNG and its project partners have received federal funding as a "real laboratory of the energy transition" in 2021, it is primarily projects for the development of a hydrogen network in which VNG's transmission system operator, Ontras, is involved. Construction is scheduled to start in Bad Lauchstädt in 2023.
All plans exceeded
Figures were also discussed at the annual press conference. 2021 was a very good financial year for VNG. According to CFO Bodo Rodestock, all forecasts were exceeded. Adjusted EBIT rose from 179 to 225 million euros, and consolidated earnings after taxes even increased from 46 to 141 million euros. The largest contribution to earnings came from Ontras with more than 100 million euros. Trading was mainly responsible for the increase in earnings with successful portfolio optimization thanks to volatile trading prices.
However, the outlook for 2022 is completely unclear in view of a wide range of risks, above all due to the uncertainties surrounding future Russian gas supplies. Heitmüller did not want to give an earnings forecast. In order to be prepared for the possible liquidity burden caused by the need to provide additional collateral to the stock exchange in the event of rising prices, so-called margin calls, VNG has received a credit line of 1 billion euros from KfW. This is purely a precautionary measure, Rodestock stressed. So far, he said, not even the company's own lines had been fully utilized.
At the end of the annual press conference, Heitmüller returned to Russia. In the long term, he said, it was necessary to see which cooperative ventures were possible. After all, Russia is the largest country in the world and we have common problems. For example, initial joint deliberations have begun on the question of how to deal with thawing permafrost soils. This is an issue where cooperation is necessary and makes sense. But at the moment, of course, it is difficult to imagine such a future cooperation.
