Groningen production could fall to 12bcm by 2020, says minister

07 June 2018 16:37 Source:ICIS
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LONDON (ICIS)--The Dutch economy minister said on Thursday that natural gas production from the Groningen field could fall to below 12 billion cubic meters (bcm) by October 2020, two years earlier than initially planned.

In a letter to the House of Representatives on Thursday, Eric Wiebes said he was working on additional measures to lower output from the current level of 21.6bcm to the 12bcm recommended as safe by upstream supervisory body the State Supervision of Mines (SSM).

In March, Wiebes had said he would cut gas production at Groningen to 12bcm by October 2022, “but possibly a year earlier,” and to zero by 2030.

The new measures include “the extra purchase of nitrogen and an additional reduction in German demand,” he wrote.

Nitrogen is used to convert primarily imported high-calorific gas to low-calorific gas like that found at Groningen.

“This could make it possible to lower the extraction level even earlier than anticipated below the level recommended by SSM, possibly even by October 2020.”

The letter was published ahead of a parliamentary debate on gas extraction at Groningen, which began on Thursday afternoon.

Price impact

Traders interviewed by ICIS said that they would need greater clarity before adjusting positions or abandoning other price drivers.

“It’s not completely official, and it’s also too far from today. Cal ’20 is rarely traded,” said one.

Another agreed but added that the acceleration of production cuts would be bullish for the TTF as those far contracts approached.

A third said that the news was not surprising enough to draw attention away from the commodities mix, which gas prices have tracked in recent weeks.

“The market is completely following oil at the moment,” he said.

There was some bullishness on the spread between the TTF and the Italian PSV, however.

The PSV summer ’19 contract traded at a €2.175/MWh premium to the TTF equivalent on Wednesday, but that had risen to €2.225/MWh after the minister’s announcement on Thursday, trades data collated by ICIS showed.

Italian shippers import H-gas from the Netherlands via Germany.

Potential for further cuts

In his letter, the minister also mentioned other measures that could further accelerate the production cuts.

Still under review, these include filling the Norg storage site with L-gas produced through quality conversion rather than with gas extracted from Groningen, and producing more L-gas from fields in the North Sea.

The proposal for Norg was put forward by Rene Peters of TNO, a Dutch research institute that routinely advises the government on energy matters.

The government is still considering the potential volume impact, but Peters told ICIS on Wednesday that it could cut demand for Groningen gas by an additional 5bcm/year.

Photo: REX/Shutterstock

By Patrick Sykes