The Dutch natural gas infrastructure under pressure: An economic assessment for Decentralized System Operators and Small consumers

Abstract

The Netherlands holds a unique natural gas infrastructure, subdivided in a low- and high-calorific system. Where the low-calorific natural gas is predominantly extracted domestically and is supplying 93% of the built environment. Studies have shown that if decarbonization pathways are taken seriously, low pressure natural gas networks should be mostly abandoned by 2050. However, in recent years significant investments in this natural gas infrastructure have continuously been made, subsequently causing decommissioning of the associated infrastructure in the coming decades. The infrastructure is accountable to Decentralized System Operators (DSOs) which, due to the socialization of the infrastructure, are monitored via a regulatory organization that ascertain comprehensive measures to ensure a DSO will comply its core task: Provide accessibility of a reliable local natural gas infrastructure and transport with respect to efficient costs. DSOs are unbiased actors and must comply with the accessibility of desired infrastructure. Therefore, this research assesses the economic consequences for DSOs when there is a forced decommissioning of connections within the built environment between the period 2018 and 2050. Results have shown a significant increase for the EI (EI) till 2050 and additional SA (SA) for all DSOs, arising from the natural gas decommissioning. The EI is divided in four components (decommissioning-, removal-, depreciation- and operational and maintenance costs) and are, due to the socialization, recalculated every five-year to the fixed annual tariff per remaining natural gas connection. From the Regulation Monopoly Model, the best-case results indicate that if zero emissions in 2050 are desired, the EI costs will grow at least with a factor 27 compared to 2018. The SA are estimated via the remaining book value of the infrastructure after 2050, with overall costs varying between 0.5 and 5 billion euros (depending on the type of scenario and strategy that is utilized). Other findings indicate a strong correlation among EI and SA is seen in relation to the decommissioning of the natural gas infrastructure. When the reduction of connections is increased, an accompanied increase in the EI and SA is evident. Additionally, the current regulation methodology has shown to be an important variable regarding the SA, and causes a mutual relation among both EI and SA. Including additional SA estimated around four billion euro. Concluding that if DSOs will retain the current regulation it cannot endure the future development of EI and SA, since DSOs are obliged to provide a reliable, safe and cost-efficient infrastructure.