Updated: Draft Groningen gas production plan due Friday

Dutch government monitoring agency the state supervision of mines (SodM) expects to publish its recommendation on future Groningen production limits on Friday, after the economy minister addressed parliament regarding a draft production plan for future years, a spokeswoman has told ICIS.

Local Dutch media reported on Wednesday that the agency had advised reducing the production cap to 24 billion cubic metres (bcm) for gas year 2016, but the spokesperson told ICIS it could not confirm the reports. The cap for gas year 2015 stands at 27bcm, with a clause to increase output to meet above-average demand in the event of a relatively cold year.

The government’s draft plan for future production is likely to be published on Friday, although the economy ministry did not respond to a request for confirmation on Wednesday.

In addition to advice from the SodM, the government’s draft production plan will be based on a proposal submitted by the field’s operator NAM. In April, NAM recommended maintaining the present 27bcm cap for gas year 2016 and adjusting future production limits on the basis of seismic data such as the frequency and magnitude of future earth tremors.

The Dutch government will hold a wider consultation on its draft production plan when it is made available and a final decision on future production limits will be confirmed later in the third quarter of 2016.

Impact

Traders have cited Groningen uncertainty as a bullish driver on the TTF curve in recent sessions and on Wednesday morning the Winter ’16 contract first traded €0.225/MWh higher than the previous ICIS closing assessment before gaining a further €0.45/MWh by 11:00 London time.

Low-calorific natural gas (L-gas) from the Groningen field is consumed by households and small industry in the Netherlands, Germany, France and Belgium. Demand for Dutch L-gas totalled 44bcm in the 2014 gas year according to GTS flow data.

Any further reduction to the annual production cap would likely boost Dutch demand for high-calorific natural gas (H-gas) which can be converted to L-gas via nitrogen blending. The Netherlands currently has capacity to convert 20bcm of H-gas to L-gas annually and this will not increase until the 2019 gas year when an expansion project will be completed, boosting conversion capacity by around 50%, or 6-9bcm/year.

As quality conversion capacity is fixed at 20bcm/year until at least October 2019, any annual production cap below 30bcm in gas year 2016 is likely to be subject to upward revision in the event of a relatively cold year. This condition has been included in the last two decisions on Groningen production limits.

According to the most recent study conducted by grid operator GTS, a minimum of 31bcm of Groningen production is needed to secure L-gas supply in a cold year.

Since March 2015, the use of quality conversion capacity has soared to around 1.7bcm/month, compared with around 0.5bcm/month previously. The additional H-gas for conversion has so far come from increased imports from Norway and via German interconnections. Increased LNG supply is another potential option, although flows from the Rotterdam Gate terminal have not changed much in recent years. jake.horslen@icis.com