Safeguarding supplies - avoiding dependence

Germany obtains roughly 85% of its gas from foreign sources. In order to safeguard German and European gas supplies in the long term, the gas must be purchased from as many reliable and geographically spread sources as possible. This avoids one-sided reliance on individual producers and thus one-sided pricing.

E.ON has the most highly diversified supply structure in Europe and purchases gas from six countries: Russia, Norway, the Netherlands, the United Kingdom, Denmark and Germany. Long-term purchase contracts  with the producers guarantee reliable supply of the European markets with gas in line with their requirements.

Long-term flexible purchase contracts

Long-term purchase contracts, the so-called Long Term Contracts (LTC), form the backbone of reliable gas supplies in Europe. They are the stable purchase base in competition with other consuming regions. Furthermore, they are the basis for justifiable investments in an efficient infrastructure.

E.ON has contracted deliveries of gas from the most important producing countries for decades to come. The contracts run for 15 to 25 years and together cover delivery volumes of some 1.2 trillion cubic metres of gas. The longest contract with the Russian producer, Gazprom, runs until 2036.

The long-term delivery contracts are the expression of decades of successful energy partnerships: for example with Russia for the past 35 years and with Norway for the last 30 years. They have proved many times to be a reliable instrument, also in times of crisis. Germany's gas supplies have never been jeopardised either in times of the Cold War or during the Russian-Ukraine gas conflict in 2009.

Through adjustment mechanisms in the contracts, we protect ourselves against unforeseen risks. In the light of the current price development on the spot markets, we have, for example, just made use of such mechanisms: we have linked some of the quantities we have promised to take to the development of prices at the European trading points.

Natural gas from our own production fields

There are still enough gas reserves for the next decades, much more than was for a long time assumed. The proved recoverable reserves alone will last for over 60 years. In addition there are still a large number of other known resources for which new technical production methods are continuously being developed. These include for example tight gas or gas in particularly deep deposits. What’s more, new deposits are continually being discovered. The constant research into innovative technologies makes it possible to identify and develop them under even the most arduous conditions.

Our own gas production is also becoming an increasingly important business segment for our company. For some time now we have been participating in the exploration and development of gas sources. We meanwhile produce gas from fields in the British and Norwegian North Sea and in Russia. We produced about 7.5 billion cubic meters (bcm) of gas in 2010, about 75 percent more than in 2009. In the long term, we want to obtain over 10 billion cubic metres of gas every year from our own production wells.

Production is due to started from the newly developed Babbage gas field off the British coast in the spring of 2010. It will contribute to the increasing gas output of E.ON alongside the development of the Skarv gas field in the Norwegian Sea and our 25% stake in the huge deposits of the Russian gas field, Yuzhno Russkoye.

With offices in North Africa and the Middle East, we are also represented in other promising energy regions.  We have acquired exploration licences in Algeria. There we are planning to drill several wells in the years to come. Our involvement in these regions is of great strategic importance: alongside E&P activities, we are also actively driving forward the purchase of liquefied natural gas (LNG).

Liquefied natural gas (LNG)

The possibility of liquefying natural gas and transporting it by ship over large distances is of great importance for Europe's supply security. Current forecasts predict that the share of liquefied natural gas (LNG) in the gas supplies of the EU will increase from currently 10 to roughly 24% by 2020. LNG will therefore be able to offset most of the decline in the EU’s own gas production.

LNG has made competition for gas more global. Today, it is an economically interesting purchase option and is a promising supplement to pipeline gas as LNG gives Europe access to gas sources in distant regions such as Africa and the Middle East.

Furthermore, we are participating in LNG receiving terminals throughout Europe. These terminals are where the LNG for the European market arrives and is regasified. For example, through our stake in Terminal Gate in Rotterdam, we have laid the foundation for supplying the European market with an annual three billion cubic metres of LNG from 2011 onwards. And the Grain terminal in the United Kingdom could provide another annual 1.7 billion cubic metres of LNG.

Biomethane

An alternative and at the same time sustainable solution for future-proof energy supplies is biomethane. It is produced from biogas which forms as a result of the fermentation of plants and other organic matter.

Biomethane is a renewable energy which can be produced independently of energy imports. It also has one unbeatable advantage over other renewable energies: It can be readily stored and used as required and is therefore suitable for covering base load demand. The energy yields from biomethane can therefore be planned much better than those from solar and wind energy which fluctuate a great deal over the course of a year.

As a climate friendly, domestic source of energy, biomethane has the potential to partly compensate for the declining production of indigenous natural gas in the medium term. In the Gas Network Access Ordinance, the German government has set a goal of covering roughly 10% of Germany's current gas consumption with biomethane by 2030.

Through our company E.ON Bioerdgas we are working on including biomethane in our gas supplies on economic conditions. Since 2008 we have been treating biogas to form biomethane in Schwandorf in the Upper Palatinate and feeding it into the gas network. The plant in Schwandorf is Europe's largest plant for the production of biomethane. It is planned to construct further plants.