London — The Dutch economy ministry plans to lower the production cap at the giant onshore Groningen field to 11.8 Bcm for the new gas year starting October 1 and expects production to end completely by mid-2022, the government said Tuesday.
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Register NowIn a statement, the government said it was taking a number of additional measures that would reduce production even faster than anticipated at the field.
The quota for the current gas year (October 1, 2018-September 30, 2019) is 19.4 Bcm so a fall to 11.8 Bcm -- if approved -- removes a significant chunk of gas supply to the northwest European market.
"With the additional measures, the government is fulfilling the promise to do everything to end gas production as quickly as possible," the government said.
The Dutch parliament is expected to debate the government's latest proposals for production at Groningen on Thursday.
Dutch economy minister Eric Wiebes has been consulting over the summer with the Dutch gas regulator SodM and grid operator Gasunie Transport Services (GTS) on the implications of a much lower quota.
In June -- following a major earthquake in May triggered by Groningen gas production -- the Dutch government said it wanted to accelerate the phase-out of the field, with the regulator recommending that the quota be reduced to 12 Bcm for the next gas year.
The originally proposed permit for Gas Year 19 was 15.9 Bcm.
"Gas production from the Groningen field will fall to 11.8 Bcm in the coming gas year, bringing production below the level recommended by SodM of 12 Bcm," the government said.
It added that while production could end as soon as mid-2022, in the event of a "harsh winter" output could continue and the field be closed "at a later time."
NAM REACTION
NAM, the operator of Groningen, said it would abide by the minister's decision. "NAM produces the Groningen field on behalf of the state. We will also do this responsibly and reliably in the coming gas year," it said.
NAM -- a 50-50 joint venture between Shell and US major ExxonMobil -- said the move was "not surprising." "The minister had already announced the wish to reduce faster," it said.
Dutch environmentalist group Groninger Bodem Beweging (Groningen Soil Movement), which has been campaigning for years for gas production to be halted, hailed the decision Tuesday as "historic."
"Gas has been extracted here for more than 60 years. And in recent years there has been a lot of misery from the quakes. Of course we are happy that this will stop," it said.
In order to reach zero production more quickly, the economy ministry has put forward a number of new initiatives. The use of nitrogen to convert imported high-calorific gas (H-gas) into Groningen-standard low-calorific gas (L-gas) plays a key role in this, it said.
"By adding nitrogen to H-gas, L-gas is obtained, which is also called pseudo-Groningen gas," it said. The production of more pseudo-Groningen gas means that less gas has to be extracted from Groningen.
In addition to a higher use of nitrogen, Wiebes has also decided to fill the Norg gas storage with pseudo-Groningen gas, which means that less gas is needed from the Groningen field.
Norg is the storage site traditionally filled with Groningen gas so that production can be used more flexibly depending on the season.
More pseudo-Groningen gas is also set to be exported to Germany, which relies on L-gas in parts of the northwest of the country.
FINANCIAL IMPLICATIONS
The government acknowledged that the accelerated reduction of Groningen gas production and the additional measures do have "financial consequences." For example, it said, the cut in production to 11.8 Bcm will see Eur400 million less gas revenue for the government budget in 2020.
The government added that the lower quota and the use of Norg gas storage will also have financial consequences for the shareholders of NAM -- Shell and ExxonMobil.
"A provisional amount of Eur90 million has been agreed for the costs of Norg gas storage and lower extraction," it said, with a final agreement to be settled at a later date.
The news -- as well as other bullish developments Tuesday such as a court ruling that will limit Gazprom's access to the OPAL pipeline in Germany and new warnings over French nuclear plant -- saw TTF gas prices on the curve surge. Prices were up almost 10% for TTF November delivery.
One Netherlands-based trader said the market had not expected Groningen production to be shut completely by 2022, adding that the French nuclear concern was also a "main driver" of the price increase.
-- Stuart Elliott, stuart.elliott@spglobal.com
-- Edited by Alisdair Bowles, alisdair.bowles@spglobal.com