Dutch suppliers may need to secure as much as 220 million cubic metres (mcm) of gas per month from alternative sources to fulfil supply requirements for the remainder of the current gas year, based on a supply void caused by new limits for Groningen natural gas production.
This equates to around 7mcm/day of gas which may have to be acquired through alternative means such as quality conversion, pipeline imports or LNG supply.
Given this winter has been relatively mild and heating demand subdued, security of supply is unlikely to be a great concern for the remainder of the gas year.
Dutch economy minister Eric Wiebes said on Thursday that production from Groningen will be capped at between 19.6 and 21.1bcm for gas year 2017, which began on 1 October 2017. The variation is dependent on temperature, but either scenario represents a drop from the previous cap of 21.6bcm.
Groningen production in the first three months of the gas year – October to December 2017 – totalled 6.09bcm, or an average of 2.03bcm/month, according to operator NAM’s data. This leaves between 13.5bcm and 15bcm to be produced between 1 January and 30 September.
Assuming production from Groningen follows a relatively flat profile for the remainder of the gas year, but is slightly higher in the winter and lower in the summer, between 1.26 and 1.86bcm/month of output may be seen from February onwards. This assumption is based on an annual cap of 19.6bcm, and assumes production follows a similar monthly profile to 2016.
Groningen production is essential to meet low-calorific gas (L-gas) demand across northwest Europe. Millions of households across northwest Europe are only set up to run on L-gas. As a result, supplier GasTerra has long-term contracts in place to deliver L-gas to customers in Germany, France and Belgium.
L-gas market size
Total L-gas demand is currently estimated at between 47-60bcm, depending on annual temperature variations, according to grid operator GTS.
Historically, Groningen output has supplied the bulk of this volume, but as production has declined to limit the impact of earthquakes caused by the extraction process, increasingly large volumes have been sourced through converting H-gas to L-gas.
Grid operator GTS performs this conversion process and is capable of converting 33-36bcm/year to L-gas using current assets.
Longer-term, there now appears to be a consensus among authorities to reduce annual Groningen production to 12bcm/year, based on comments made by the energy production regulator, GTS and the government on Thursday (see separate story).
No time frame has been given for this process, but Wiebes is expected to shed further light on the long-term outlook for Groningen by the end of March.
Demand for L-gas is set to drop in the coming years and the wheels are in motion to convert Dutch, German, French and Belgian networks to run on H-gas rather than L-gas.
But this is a lengthy process with conversion work not expected to be finished until the end of the next decade. Any severe Groningen production caps will not smooth this transition.
Wiebes has called on industrial users in the Netherlands to swiftly cut out their L-gas usage and is in discussions with authorities across northwest Europe to speed up the phase-out out of L-gas consumption.
He has also not ruled out the construction of an additional H-gas conversion plant.