Interactive: Groningen production set to fall year on year this summer

Low-calorific gas (L-gas) fundamentals in the Netherlands are finely balanced heading into the summer injection season, with stocks at the Norg L-gas facility beginning to be replenished from their lowest level in at least seven years.

The final level of permitted Groningen gas production remains uncertain following volatile winter weather, but summer production is likely to fall well short of output in summer 2016.

Average consumption would help to ease fundamentals and injection demand is expected to be lower due to a capacity restriction at Norg, but conversion of high-calorific natural gas (H-gas) to the L-gas grid will be crucial this summer.

Quality conversion may need to increase significantly from the 8.6 billion cubic metres (bcm) converted in summer 2016 in order to fill L-gas stocks and meet summer consumption.

Summer demand

According to data from production and storage operator NAM, L-gas stocks at Norg stood at 5.8TWh (590 million cubic metres (mcm)) on 28 March, down from 900mcm on the same day last year.

At the smaller, TAQA-operated Alkmaar peak-shaving facility, stocks stood at 170mcm, up from 150mcm.

Despite lower aggregate L-gas stocks at the two Dutch sites, summer injection demand will fall short of 2016’s 5.82bcm total due to a capacity reduction at the Norg facility. Norg’s technical capacity was reduced from 7.2bcm to 6bcm between gas year 2015 and 2016, due to technical issues.

At both Norg and Alkmaar, there was room for up to 5.7bcm of L-gas injections as of 28 March.

In addition to storage demand, summer L-gas consumption will also need to be met. According to grid operator data, combined domestic Dutch consumption and L-gas exports to Germany and Belgium have averaged 14.7bcm during the summer in the past four years, ranging between 13.2-16.3bcm and totalling 15.2bcm in summer 2016.

Assuming average consumption and maximum injections, summer L-gas demand could therefore total 20.4bcm. The summer 2016 total was 21bcm.

Summer production

Despite lower injection demand and the potential for a year-on-year drop in exports and consumption, a number of supply-side risks remain.

Groningen output may only cover a little more than half of summer demand for Dutch L-gas during summer 2017, depending on any potential increase to the annual production cap ( click here for the ICIS briefing on Groningen production ).

A total of 11.3bcm was produced from the field between October-February, a figure which could rise to at least 12.7bcm when NAM publishes production data for March in the first fortnight of April.

This would leave a little more than 11bcm of permissible production for the summer period, which would be down from 13.9bcm produced in summer 2016.

A key unknown is if, and how much, additional production may be permitted beyond the 24bcm cap. The Groningen production plan permits additional production only in the event of below-average temperatures or outages in the grid.

The Dutch government assesses temperatures based on the number of degree days in the year. A degree day is a measure of how far the average wind-adjusted temperature of a given day falls below a 14°C household heating limit.

The reading is taken in De Bilt and there are 2,300 degree days in an average temperature year, according to the Groningen production plan. If more than 2,300 degree days are recorded across the year, Groningen production can be increased proportionally up to a maximum of 30bcm (3,000 degree days).

Volatile weather conditions through winter 2016 has made predicting the final number of degree days for gas year 2016 particularly tricky.

ICIS has used the three-, five- and ten-year average number of degree days as the basis of a rolling outlook for the balance of the gas year since October.

Use the buttons on the graph to see how the degree days outlook has changed through the winter.

Assuming three-, five- or ten-year average wind-adjusted temperatures through to October 2017, there is currently little chance of any increase to the Groningen production cap.

A more accurate final-year prediction could emerge by June as the degree-days curve begins to flatten in the final four months of the gas year.


Conversion

The shortfall between Groningen production and the total demand for Dutch L-gas can be covered, to an extent, by H-gas conversion via nitrogen blending.

Assuming no increase to the production cap, Groningen output could be pegged several billion cubic metres below summer 2016’s 13.9bcm output.

This could mean a significant increase in H-gas conversion, which totalled 8.6bcm during summer 2017, if L-gas storage sites are to be filled by the end of the summer period.

The additional Dutch demand has mostly been covered by Russian gas in recent years, but Norway and LNG may also compete to supply the Netherlands this summer. jake.horslen@icis.com