Dutch government plans 10% cut to Groningen gas production

18 April 2017 18:00 Source:ICIS

The Dutch government plans to reduce the Groningen low-calorific natural gas (L-gas) production cap by 10% for gas year 2017, economy minister Henk Kamp said in a letter to parliament on Tuesday.

The decision comes in response to advice issued by government monitoring agency the state supervision of mines (SodM), following a review of seismicity in the region.

The current Groningen production plan has capped annual output at 24 billion cubic metres (bcm) for the five years from gas year 2016. A 10% reduction in gas year 2017 would therefore equate to a 21.6bcm production ceiling for the 12 months from October 2017.

Reduced production in gas year 2017 will increase the strain on high-calorific gas (H-gas) conversion as a source of supply and the use of the 6bcm capacity Norg storage site as a source of flexibility. According to data from grid operator GTS, 15bcm of H-gas was converted to the L-gas grid during winter 2016, up from 11.7bcm in winter 2015 and 5.5bcm in winter 2014.

The development lifted gas prices at the Dutch TTF during the afternoon and into the 16:30 London time assessment.

The Day-ahead, front-month May ‘17 and Winter ‘17 all began to rise shortly before 15:00 and were close to their intra-day highs by 16:30.

Winter ‘17 rose by €0.525/MWh session on session to a six-week high of €17.675/MWh, according to ICIS price assessments.

New advice

Minister Kamp said that new advice from SodM on 13 April made two sets of recommendations based on whether a limit on earthquake density – the number of earthquakes per square kilometre per year – is breached in the future or not.

If the limit is exceeded, SodM said, then it advises lowering production from the present 24bcm limit, starting with a 10% reduction. The agency also advised against seasonal fluctuations at this reduced level – as is already the case – and permanent monitoring of seismicity.

If the limit is not exceeded, SodM advised among others things, that the government maintain the 24bcm production limit, avoid fluctuations in production and to conduct further research and investigations to optimise and reduce fluctuations further.

In the letter to parliament, Kamp said he planned to table a motion to adopt the agency’s advice and reduce production in gas year 2017 by 10%, even before the regulated evaluation of production and seismicity on 1 October. The minister said this was because of an increase in earthquake density in the particularly vulnerable region of Loppersum.

Kamp said that since October 2016, earthquake density in Loppersum had increased from 0.12 to 0.22. The upper limit is 0.25. The minister did note, however, that the number of earthquakes with a magnitude of more than one on the Richter scale across the Groningen region had more than halved from 77 in the 2013 calendar year, to 36 in 2016.

Production from the Loppersum region has been restricted by a court order since April 2015, with just 1bcm produced in the 2016 calendar year. This is down from 17bcm in the 2013 calendar year.

Kamp said he would work with Groningen field operator NAM and GTS to investigate how production in the Loppersum region can be further reduced.

The current plan contains a provision to increase production up to 30bcm in the event of below-average temperatures across the year, but the minister did not say if and how this provision would change under a new lower cap.

Outlook

On 22 May, the Dutch council of state – the Netherlands’ highest general administrative court – will hear objections to the government’s five-year Groningen production plan, with a ruling due “a few months later”. In November 2016, the court received 22 admissible appeals against the Dutch government’s latest production plan.

By the end of the summer, the Dutch government plans to make a final decision on whether or not to invest in a new nitrogen plant to boost H- to L-gas conversion capacity.

Click here for an ICIS briefing on the history of production at Groningen. jake.horslen@icis.com

By Jake Horslen