Neptune urges Dutch tax changes to help meet gas production potential

Gas-focused producer Neptune Energy called on the Dutch government Oct. 20 to introduce an investment allowance as part of its plans to raise levies on energy companies to help the country realize its gas production potential.

In July, the Dutch government said it hoped to produce more gas in the North Sea in the coming years through an acceleration of the upstream permitting process, with 2-4 Bcm/year of additional output possible in the long term.

However, Neptune -- the largest offshore gas producer in the Dutch sector of the North Sea -- said an investment allowance was needed to avoid "risks" to the country's energy security.

The Dutch government has said it intends to increase levies under the Mining Act for the energy sector in 2023 and 2024, with additional tax revenues helping finance support for Dutch homes and businesses struggling with high gas prices.

European wholesale gas prices reached record levels in 2022, though they have dropped back in recent weeks on healthy storage levels and lower demand.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price on Oct. 19 at Eur115/MWh, down from the record high of Eur319.98/MWh in late August.

Similar measures

Neptune said continued investment in the Dutch North Sea was key to boosting gas output.

"While recognizing decisive action by government is needed to support households and businesses with high energy costs, Neptune is urging ministers to include an investment allowance in its tax plans," it said in a statement.

Similar measures, it said, were already in place in the major European gas-producing countries of Norway and the UK.

"In recent years, investment in the Dutch North Sea has fallen to only a fraction of that in Norwegian and UK North Seas," Neptune said.

"As a result, substantially higher levels of investment will be required in the near term to achieve anything near the increased gas production potential as outlined by the economy ministry," it said.

The ministry in July said measures were being taken that would provide additional gas in both the short and long term.

An additional 1 Bcm/year of gas could be produced in the next one-to-three years, it said, while an extra 2-4 Bcm/year of gas could be produced in five years' time at the earliest.

Neptune's managing director in the Netherlands, Lex de Groot, said global energy investors had a choice where to put their capital.

"By introducing an investment allowance, the government would make the Dutch North Sea competitive for investors against other countries that already have such allowances in place," de Groot said.

"The Netherlands has huge potential energy resources, but increased investment is crucial if we are to maintain energy security and avoid customers being exposed to less secure, higher cost and higher carbon energy in the future."

Neptune investment

Neptune said it planned to invest around $1 billion in the Netherlands over the next five years to support energy security.

"With an appropriate fiscal regime in place, the company could invest a further $1 billion, including in lower carbon developments, repurposing existing offshore infrastructure to support carbon capture and storage and hydrogen production," it said.

The Dutch government's proposals include a temporary increase in tax levy from a scale between 0% and 7% to a flat rate of 65% for all sales turnover at a price above Eur0.50 per cubic meter of gas produced for 2023 and 2024.

In contrast to the current system, this would apply not only to onshore produced gas, but also to the volumes produced offshore.

If the legislative proposal is adopted, the Mining Act would likely be amended with effect from Jan. 1, 2023.

The EU has also adopted an emergency regulation allowing member states, including the Netherlands, to levy an additional profit tax for 2022 and/or 2023.

"The Netherlands plans to implement this additional profit tax with retroactive effect from Jan. 1, 2022, creating a unique situation where tax rules for companies are significantly changed during a current financial year," Neptune said.

Groningen output

The Netherlands was historically a net gas exporter thanks to its giant onshore Groningen gas field, but output from the field has been gradually reduced in recent years due to the risk of earthquakes associated with drilling at the site, making the country more dependent on imports.

Groningen's output quota for the current gas year that started Oct. 1 is 2.8 Bcm.

However, the Netherlands also produces gas from numerous small fields, which together produced some 12.7 Bcm in 2021.

There are some 240 small gas fields in the Netherlands, with around half onshore and half offshore, according to economy ministry data.

The Dutch government has so far resisted calls for Groningen output to be ramped back up to help counter the energy crisis, saying it would only consider allowing more production from the field as a "last resort."

Groningen is estimated to still have 450 Bcm of recoverable gas resources, but the government so far remains committed to ending output due to the earthquake risk and despite the current high gas prices.