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Netherlands lowers Groningen output further

The government has cut production to curb damage to the region's buildings

The Dutch government has further cut production from the giant Groningen gas field in order to limit damage to the buildings in the region, leaving the country even shorter of peak gas supply this winter.

In early July it set a cap of 30bn cm on this year’s production from the giant, flexible Groningen gas field, meaning that the operator NAM may produce just 13.5bn cm in the second half of the year.

Gas marketer GasTerra may need to import more gas to meet domestic demand and export commitments. GasTerra, which is owned 25% each by the majors ExxonMobil and Shell – who are also the 50-50 shareholders in NAM – and 50% by the Dutch state, has exclusive rights to market Groningen gas.

The cut from NAM means that GasTerra will have to source more gas from the market and it says that this has “obviously negatively influenced our revenues.”

It buys gas from Dutch sources and from Gazprom and Statoil, who are active traders on hubs in northwest Europe. It says it is able to meet its contractual obligations to its customers under the present Groningen production regime.

The government was acting on the advice of the state mining oversight agency, which called for lowering the output as far as realistically possible, but the agency allowed an upper limit of 16.5bn cm for the second half of 2015 – the same that was allowed in the first half.

From January-June this year the field produced 16.49bn cm, whereas at the same point a year ago it had already produced 23.03bn cm/yr, with full-year production of 42.4bn cm. In previous years before the government acted on the residents’ concerns it produced over 50bn cm.

Economy minister Henk Kamp said that the “safety of the people of Groningen must come first,” so production would be as little as possible.

The government had, on the advice of the mining agency, already cut extraction in the most productive region of Groningen, Loppersum by 80% and put in place a ceiling of 42.5bn cm for 2014. For this year, that fell further, initially to a maximum of 39.4bn cm.

The 30bn cm may be supplemented with 3bn cm of gas from NAM’s storage facility at Norg. The government also reserves the option to extract up to an additional 2bn cm if this is “absolutely necessary as a result of technical problems in the gas supply system.”

By the end of the year, the government will look into other approaches to gas extraction, and the possibility of greater imports, which would damage the country’s economy.

For French bank Societe Generale, the cap is bullish. It has “put Gazprom back in the driving seat in Europe for the short to medium term,” it said in a note 13 July. “European customers have little option other than to take more Russian gas in the coming months. More Russian gas would therefore need to transit via Ukraine at the end of the year. The current geopolitical stand-off between Ukraine and Russia is still tense. EU-Russia-Ukraine talks to find a temporary solution on prices for the coming months are on hold.”

Shale gas out

No drilling for shale gas will take place in the Netherlands during the current cabinet term, and existing licenses for exploration activities related to shale will not be renewed, according to the government on 10 July.

The cabinet will decide at the end of the year whether or not it is desirable to keep shale gas as a broad option for the Netherlands in the future.

“At that point, I will present a vision of energy policy after 2020, based partly on recent insights relating to sustainable energy, the better utilisation of geothermal energy, and gas extraction in the province of Groningen,” said Kamp.

Since 2013, the cabinet has commissioned various studies on the social effects, the environmental consequences, and the possible costs and returns of shale gas extraction in the Netherlands. As no test bores have taken place so far, it is not yet clear how much shale gas is present, and whether the extraction of shale gas could be profitable.

It means that no commercial exploration activities or commercial extraction of shale gas can take place within the next five years.

"In that vision, I will address the matter of how a responsible, reliable, and affordable supply of energy to Dutch households and businesses can be guaranteed in the future. I will also address the matter of how fossil fuels could best be used in the transition to a sustainable energy supply,” he said.

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