LONDON (ICIS)--As the Netherlands prepares for life without Groningen, the giant gas field that has supplied much of northwest Europe for decades, the government hopes to boost supply from the country’s smaller fields.
Taken together, the small fields produced 19 billion cubic meters (bcm) in 2017, almost as much as Groningen’s 21bcm, according to NLOG, a government data portal.
But while Groningen has been subject to increasingly severe production cuts due to earthquakes caused by gas extraction in the region, producers at the onshore and offshore small fields are free to continue pumping as long as their reserves and margins allow.
Since deciding to turn off the taps at Groningen by 2030, the government has said that it prefers increasing alternative domestic output to increasing imports from abroad.
Economy minister Eric Wiebes has already given provisional approval to a controversial fracking project, and says he has over 60 more new extraction permit requests sitting on his desk.
EBN, a state-backed producer that automatically takes a 40% stake in all small-field production, predicts that “enhanced activities such as exploration, increased recovery, tight gas development and infrastructure optimisation” could add 150bcm to its small-fields reserves by 2050.
“The small fields are in decline and we can’t stop that,” said Thijs Starink, EBN’s programme manager for small fields, “but we can slow it down.”
Willem Braat, a gas market analyst at the IEA, agreed.
“Everyone talks about the natural decline of the small fields, but there is of course upside potential.”
Production at the small fields is often less profitable than at Groningen, so the government may have to offer producers additional incentives if it wants to increase output.
The fields are governed by a dedicated small fields policy, drawn up after OPEC’s 1973 oil embargo in a bid to promote domestic supply diversity.
Under the current rules, producers at marginal fields enjoy tax relief and a guarantee that incumbent GasTerra will buy their gas at the market price if requested.
Minister Wiebes was due to announce a “recalibration” of the small fields policy in March, but postponed it to April due to the recent Groningen announcement.
Now, producers are angling for more favourable terms.
A spokeswoman for independent producer Vermilion Energy, singled out “improving the cycle times of permit processes” as a potential step forward.
Starink of EBN said the tax cuts for marginal fields could be expanded to all new projects.
“With the lower gas prices, we have seen some reduction in activity,” he said.
“I don’t think anyone is sitting on production at the current level because they are losing money. But obviously with a higher gas price of, say, 25 cents, certain fields could produce for up to a year longer.”
Bert Clever, manager for Dutch operations at Hansa Hydrocarbons, another independent, said the current economics “absolutely” worked, but suggested the government could do more to help with infrastructure costs.
Highs and lows
Demand for the high-calorific gas that most Dutch small fields produce is set to rise as infrastructure designed for Groningen’s low-calorific gas is phased out over the coming years.
In the short term, grid operator GTS wants to maximise conversion of high to low-calorific gas in order to reduce Groningen production as fast as possible without jeopardising security of supply.
But any upside at the small fields will ultimately be a short-term solution. As they decline, demand will have to be met with more foreign imports, most likely from Russia, Norway or LNG. firstname.lastname@example.org
Small fields registered as of January 2018: 314
New extraction permits under review: 60
Production in 2017: 70mcm/year