Home Blogs Energy Connections ICIS View: Groningen residents’ gain is Europe’s loss

ICIS View: Groningen residents’ gain is Europe’s loss

By Patrick Sykes on 05-Jun-2018

As the bill to cut production from the Netherlands’ giant Groningen field makes its way through the Dutch halls of power, the challenges of implementing it are becoming increasingly apparent.

Traders want greater clarity on how fast production will fall, particularly in the coming gas year.

Big industrial customers forced to convert infrastructure for use with imported gas want to know who will foot the bill.

Storage operators feeling the pressure of already narrow margins want guarantees of compensation if they have to take on some of Groningen’s swing-supplier role.

They should get some answers in the coming weeks, but they may not like what they hear.

Crunch time

This Thursday, parliament will grill economic affairs minister Eric Wiebes on his bill, which proposes to slash production from its current permitted level of around 20 billion cubic meters (bcm) to 12bcm by 2022 and zero by 2030, in order to reduce the risk of earthquakes in the region.

The debate is scheduled to begin at 14:45 Amsterdam time and could continue until as late as 22:00, parliamentary spokesman Edward Donraadt told ICIS on Tuesday – far longer than most debates.
This will be followed by a parliamentary vote on the bill a week later – most likely on 12 June, according to Donraadt.

The debate and the results of the vote will inform the final production plan for Groningen over the next gas year, which starts on 1 October. The minister has previously said he would publish the plan in June.

Pressure building

The backdrop for this flurry of parliamentary activity is the publication on Monday of the Council of State’s advice to the minister on the bill.

The council is the Netherlands’ highest administrative court, and ministers traditionally seek its advice before sending legislation to parliament, though they are not bound to heed it.

For the market, the court’s key message was that “safety for local residents takes precedence above the societal importance of security of supply”.

The minister had previously defended security of supply, arguing that lives could be at risk if flows of gas for electricity, heat and cooking are interrupted. But the council said he had “inflated” its importance.

Given that it is the biggest onshore gas field in Europe, the closure of Groningen already presents a major challenge to the make-up of regional supply, which will increasingly rely on Norway, Russia and LNG for imports.

In privileging the safety of Groningen residents, this latest advice puts pressure on the minister to cut supply even faster than initially planned.

MPs who owe their jobs to the public have every incentive to take the same line in Thursday’s marathon debate.

Their primary concern is rightly the safety of the Dutch public, but they should know that what they decide will affect markets across the whole continent.