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Netherlands rules out change to Groningen gas field policy despite high prices

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Netherlands rules out change to Groningen gas field policy despite high prices


Output hike would lead to higher earthquake risk: ministry

Field set to close in mid-2022, back-up role to remain

European gas prices on run to record highs

  • Author
  • Stuart Elliott
  • Editor
  • Kshitiz Goliya
  • Commodity
  • Natural Gas

The Dutch government would not consider any change to its policy on gas output from the giant Groningen field despite record-high prices in the Netherlands and across Europe triggered by a tight market and winter supply concerns.

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Groningen is slated to be effectively closed in mid-2022, with only a few parts of the field to be kept open to provide some additional supply in the event of an emergency, such as an extremely cold winter.

Once Europe's biggest producing gas field, Groningen output has been gradually reduced in recent years due to earthquakes associated with production drilling at the site.

The production quota for the upcoming gas year due to start on Oct. 1 as set by the Dutch economy ministry is just 3.9 Bcm -- a far cry from the its most recent output peak of 54 Bcm in 2013.

A tight market has seen month-ahead Dutch TTF prices hit record highs in recent weeks, with S&P Global Platts assessing the contract on Sept. 15 at Eur70/MWh, up from just Eur10.90/MWh a year ago.

Asked whether the economy ministry would consider granting Groningen operator NAM -- a joint venture between Shell and ExxonMobil -- temporary approval to produce more to alleviate the high prices, a spokesperson said: "Absolutely not."

"We're on our way to closing the Groningen field as soon as possible and only in case of emergency in the next couple of years (e.g. an extremely cold winter) there is a small chance we'll produce a limited amount," the spokesperson said.

"Increased production from the Groningen field leads automatically to an increased risk of earthquakes and that's not acceptable for the government."

Back-up role

The closure of Groningen is estimated to leave at least 450 Bcm of gas in the ground -- around one year's worth of gas demand in the EU and UK.

Under current plans, the majority of Groningen production will halt in mid-2022, but parts of the field will be kept open as a "back-up" gas source with full closure likely between mid-2025 and mid-2028.

Under current plans, a "minimum" flow is expected to continue from the field -- seen at 1.3 Bcm in Gas Year 22 (October 2022-September 2023).

However, Dutch gas grid operator GTS said in June that the final closure of Groningen could be realized earlier, as soon as 2023.

It said this would be possible thanks to several factors, including the accelerated conversion of end-users in Belgium from low-calorific gas (L-gas) to high-calorific gas (H-gas); and the switch of the Grijpskerk gas storage facility from H-gas to L-gas.

Belgium still purchases L-gas from the Netherlands, but with the end of production from Groningen, agreements have been made between the Dutch and Belgian governments to make gas installations in Belgium suitable for H-gas.

The Belgian government has indicated that it will be able to complete the conversion process a number of years earlier than previously agreed.

GTS also said that with the full closure of Groningen, it would be important that the L-gas storage areas are used to support gas supply security. Instead of parts of Groningen remaining open to supply Dutch consumers in the event of a supply emergency, L-gas can be supplied out of storage.

It is planned for the Grijpskerk gas storage facility, also operated by NAM and currently an H-gas site, to be converted to L-gas.

One final factor is the development of the nitrogen installations in Zuidbroek, which are expected to be ready in spring 2022. By adding nitrogen to imported gas from Norway and Russia, H-gas can be turned into L-gas.