Last updated April 2018
LONDON (ICIS)--The Netherlands plans to close Europe’s largest onshore natural gas field by 2030, after growing civil unrest over extraction-related earthquakes.
The government has imposed increasingly severe production caps to limit the earthquake risk, with output expected to reach a record low of between 19.6-21.2 billion cubic meters (bcm) in gas year 2017 (ending 1 October 2018).
The region’s largest tremor since 2012 struck on 8 January 2018, leading to renewed calls for more stringent production curbs to be imposed.
The government’s new mantra for Groningen production is “never more than necessary”. Grid operator GTS has proposed a new formula to calculate what “necessary” means. The key variables are the number of unseasonably cold days (known as ‘degree days’) and the percentage use of quality conversion facilities that convert high-calorific (H) gas like that found in Norway, Russia and LNG to the kind of low-calorific (L) gas produced at Groningen.
For each degree day beyond an allowance of 2,300, field operator NAM will be able to produce an additional 8.86 million cubic metres (mcm). Currently the extra allowance is 8.57mcm/degree day.
“The aim should be to achieve the highest possible nitrogen utilisation,” said GTS.
The operator estimates that “this results in a required Groningen volume of 19.4bcm and 25.7bcm in an average and cold year respectively”.
Economy minister Eric Wiebes is due to announce a new extraction plan in mid-June.
Politicians face the difficult task of managing the earthquake risk while also ensuring security of supply, as customers across northwest Europe rely on the field’s low-calorific gas, and incumbent GasTerra has export obligations running up to 2029.
The production regulator, the State Supervision of Mines, advised the government that 12bcm/year would be a safe level of production. On 29 March 2018, Wiebes announced that production would fall to that level by October 2022, and perhaps 2021, then to zero by 2030.
In order to hit its targets, the government must convert infrastructure and appliances designed to use Groningen’s L-gas and increase the supply of H-gas to substitute it.
It intends to do this by expanding capacity at quality conversion plants and fast-tracking new infrastructure for large industrial users. Longer-term plans to replace L-gas infrastructure in France, Germany and Belgium cannot be accelerated, Wiebes has said.
Just a few years ago, in 2013, Groningen produced 45bcm, and at its peak in the 1970s it was pumping 88bcm/year.
As a result of the cuts, the Netherlands imported more gas than it produced for the first time in 2017.
The government has lost significant sums of money from the field’s decline. State revenue from natural gas has plunged from €12.4bn in 2011 to a forecast €2bn in 2018, according to Statistics Netherlands (CBS).
Groningen is Europe’s biggest on-shore field, supplying high-nitrogen, low-calorific natural gas, which is consumed in the Netherlands, parts of Germany, Belgium and France.
Extraction from the field has caused earth tremors and property damage in the region, prompting opposition to gas extraction among local businesses and residents, particularly in the past two years.
In response, the government imposed production curbs.
As millions of households are only set up to use low-calorific gas, the government says it can not cut Groningen production more without risking security of supply across northwest Europe.
Dutch supplier GasTerra has a number of long-term contracts in place with German, French and Belgian companies and relies on Groningen volume to meet obligations
As millions of households are only set-up to use low-calorific gas, the government says it cannot cut Groningen production more without risking security of supply across northwest Europe. Dutch supplier GasTerra also has a number of long-term contracts in place with German, French and Belgian companies, and will rely on Groningen volumes to meet obligations.
High-calorific gas, which is more prevalent and includes Russian and Norwegian production, can be converted to low-calorific gas via a process of nitrogen blending. The Netherlands has capacity to convert around 20bcm annually and, following heavy cuts since February 2015, is now using nearly all of this to meet demand.
Seasonal flexibility from Groningen has already been lost due to the Groningen curbs. Output from the field now follows a broadly flat profile to try to limit the frequency and impact of tremors. Previously, production would ramp up in the winter and scale back in the summer to meat seasonal demand peaks.
Additional production is permitted beyond the fixed cap if temperatures in the Netherlands are lower than average across the year. This is measured by the number of degree days recorded in the city of De Bilt.
17 December 2014 – Dutch government reduces 2015 calendar-year cap from 42.5bcm to 39.4bcm.
9 Feb 2015 – Government imposes 16.5bcm cap on production between January-July 2015.
March 2015 – 42 parties launch a legal challenge against Groningen production strategy.
14 April 2015 – Dutch court rules against a complete halt to Groningen production, but limits output from the Loppersum cluster of fields.
23 June 2015 – Dutch government caps 2015 annual production at 30bcm and gas year 2015 production at 33bcm.
3 August 2015 – Dutch court receives 13 fresh objections against 30bcm cap.
September 2015 – Dutch court hearing into Groningen production plan held.
November 2015 – Dutch court enforces 27bcm cap for the 2015 gas year, stating that government failed to justify setting the cap at 30bcm, which was more production than was expected to be needed in an average-temperature year.
June 2016 – Government proposes five-year production plan permitting 24bcm/year. Plan includes provision to increase cap in the event of below-average temperatures.
September 2016 – Dutch parliament approves 24bcm/year five-year plan.
November/December 2016 – 25 objections lodged against latest Groningen production plan, hearing held in December.
January 2017 – Dutch court provisionally rules against further restriction on Groningen production. Full hearing date in second quarter to be announced in February. Full hearing to be held on 22 May.
April 2017 - The Dutch government receives new advice from the state supervision of mines and announces its intention to reduce Groningen's production cap by 10% for gas year 2017, beginning in October 2017. The key reason was evidence of an increase in seismic activity in the Loppersum region.
April 2017 - Dutch court of appeal orders criminal investigation into damage caused by gas production between 1993 and 2015. Court says the proceeding will have no bearing on future government decisions about production.
July 2017 - Dutch council of state hears objections to government's latest Groningen production decisions. Most objections were from parties who are keen to see a further restriction on output, but the field's operator NAM has also complained the latest cut for gas year 2017 was too stringent.
November 2017 – Dutch council of state rules that the Groningen annual cap will be fixed at 21.6bcm for gas year 2017.
January 2017 – The Groningen region is struck by its largest earthquake since 2012, leading to calls for more stringent production curbs to be imposed.
January 2018 - Economic affairs minister Eric Wiebes begins consultation of 200 large-scale customers on how to reduce demand.
February 2018 - Production regulator SSM says production should be cut to 12bcm/year "as soon as possible".
February 2018 - NAM stops production at the Loppersum site in Groningen.
March 2018 - Government announces Groningen will close by 2030
The economy minister will announce a new policy for the Dutch small fields in May, and a new production plan for Groningen in mid-June.
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