The competitive position of Dutch companies will be jeopardised if gas prices rise again, according to research by climate economist Sacha den Nijs of the Vrije Universiteit Amsterdam. This is problematic because, for example, international conflicts and increasing demand from Asia and Africa can cause prices to rise or fall suddenly.
For quite some time, the Netherlands had been able to benefit from the gas fields beneath Groningen. Companies flourished, but over the years, they also became heavily dependent on gas in their production processes. Now that the Netherlands is phasing out gas extraction and has closed the largest gas field in Groningen, this dependency could become a problem. Companies are now more dependent on gas from abroad, which can cause more uncertainty and sudden price changes.
Den Nijs: ‘Geopolitical developments, such as the war between Russia and Ukraine, the re-election of Trump and the ongoing shortage due to the increasing demand for gas from other parts of the world, are creating uncertainty in the gas market, which can cause prices to rise or fall suddenly’. The energy transition is not yet leading to a decrease in the demand for gas, because gas-fired power plants remain necessary: they can quickly ramp up their production at times when there is little sun and wind turbines are not running. Also, gas is still widely used to heat homes and not every home can be heated electrically.
Gas prices are no longer as high as they were during the first year of the war in Ukraine, but concerns about possible increases in the future have not eased. For this reason, PhD candidate Sacha den Nijs and VU professor Mark Thissen have examined how sensitive companies are to future gas price increases.
Weaker competitive position
‘We examined the extent to which the competitive position of companies improves or deteriorates as a result of an increase in gas prices per province and per sector’, explains Den Nijs. ‘The analysis shows that all Dutch regions experience a deterioration in the competitive position of the industry when gas prices rise for European users. Moreover, this deterioration is greater in the Netherlands than in other European countries’. This can be explained by the high dependence on gas in Dutch production processes. ‘If gas prices rise, our competitors in Europe are also affected. However, if Dutch companies use more gas than their competitors, they will have to pass on a larger price increase to their customers’.
The negative effects of a price increase are greatest in Groningen and South Holland, regions with many low and medium-tech industries. ‘These companies, compared to competitors, are more dependent on gas’, says Den Nijs.
Becoming more resilient
Fortunately, companies can become more resilient. ‘Companies that want to remain competitive and be less sensitive to price fluctuations can replace processes that currently run on gas with electricity. They can also use gas and electricity even more efficiently’. For the high-tech industry, however, it is more difficult to reduce sensitivity to gas price increases. ‘Those companies are mainly indirectly dependent on gas, through companies in the supply chain’.
According to another study by Den Nijs, many companies are still saving less on energy consumption than they could. For the research, which she conducted with PhD student Leon Bremer and VU professor Henri de Groot, she sent questionnaires to more than 100 industrial companies. The results are striking. Den Nijs: ‘Dutch companies can, profitably, reduce 15 percent of their energy consumption by investing in energy efficiency. An additional advantage is that this also reduces the sensitivity to gas price increases’.
Despite this win-win situation and the climate goals, companies do not always invest. ‘The survey showed that uncertainty about government policy is seen as the biggest barrier to investing in energy efficiency. This uncertainty about policy now plays a greater role than during an earlier survey in 1998’.
Invest faster
According to Den Nijs, it is important for companies to make progress in investing in energy saving. This is due to climate goals, but also to strengthen their own competitive position. This was also highlighted in Mario Draghi's September 2024 report on the competitiveness of the European Union. Den Nijs: ‘Other countries are also working on the energy transition, and Dutch industry is starting to lag behind because of its strong dependence on gas. So if companies want to remain competitive, they need to invest faster than foreign competitors’.
Sacha den Nijs defends her PhD the 7th of May
Listen to the interviews with Sacha den Nijs on BNR Nieuwsradio on 5 September and 24 July.