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Big oil rises to Dutch geothermal challenge

The quest for clean energy to fill the gap left by declining gas production could be tailor-made for oil firms

Geothermal energy has been a niche heating and power source across Europe for decades. But the need to displace fossil fuels and clean up the energy sector has intensified the spotlight on it. A prime example is the Netherlands, where the planned closure of the Groningen gas field has sparked a search for alternative ways to heat buildings and the country's famous greenhouses.

Geothermal is already a popular source of cheap, clean heating for the Netherlands' large tomato and flower-growing industry, pumping hot water from up to 4km (2.5 miles) below ground to serve greenhouses via heat networks. But now geothermal is starting to go mainstream, echoing increasing interest in the sector in neighbouring France and Germany.

Firms such as Shell, France's Engie and Canadian independent Vermilion Energy have submitted plans for large geothermal heat projects in the Netherlands in recent months. Official data shows more than 30 applications were received for geothermal permits across 2017 and 2018, compared to fewer than 10 in total over the previous seven years.

Growth has been fuelled by government support for an industry that ticks clean energy boxes through subsidies and the provision of risk insurance for geothermal projects. The government wants to see 135 petajoules (37.5TWh) of annual geothermal heat supply by 2050, a vast increase on current production levels of around 3PJ. In order to achieve this, the industry estimates that, by that date, around 700 geothermal wells have to be sunk. This would require a drilling rate of around 26 new wells every year-currently, the Netherlands has just 17 of these wells, known as doublets, which allow hot water to leave and cooled water to return to the aquifer.

The country is an attractive market for geothermal projects. "Today, the Netherlands is leading in Europe," says Philippe Dumas, secretary general of the European geothermal energy council (EGEC). "The framework conditions in the Netherlands are great for developing deep geothermal projects."

One of the stand-out elements of the regime is that the government helps companies cover the risk of exploration, removing a key obstacle that often stands in the way of tapping fresh energy resources. The Dutch government has already committed to continuing this regime and to help the industry mature, for example by running innovation programmes to improve technological know-how.

Data and expertise to hand

The Netherlands' 60-year oil and gas exploration history also provides a confidence-building backdrop for geothermal investors. The country's geology has been well mapped and assessed over the decades, providing a wealth of geological data invaluable for picking project sites.

"The potential to develop geothermal energy in the Netherlands is in the same reservoirs as where exploration for and production of oil and gas has been done for many decades," says Hans Veldkamp, a geologist specialised in geothermal energy at Dutch research organisation TNO.

Dutch law stipulates that all drilling data must be made publicly available after five years, a system that facilitates easy entrance to new players. Veldkamp says that, thanks to the accessibility of vast amounts of subsurface data, the geothermal industry has been able to grow rapidly.

A 2018 Dutch geothermal masterplan, drawn up by industry and government bodies, estimates that geothermal resources have the technical potential to provide more than 1,000PJ/yr of heat, roughly equivalent to current Dutch annual heating demand of around 960PJ.

A rich exploration history has also left the Netherlands with a top-notch supply chain of engineering and drilling specialists, whose skills can be readily adapted to the geothermal energy sector. "This, in combination with the high gas usage of the enormous and often cooperative greenhouses in the Netherlands, was an important accelerator for the geothermal industry. The match between supply and demand was relatively easy to make," says Bob Harskamp, business development manager at Well Engineering Partners, a Dutch drilling services company specialised in geothermal projects.

Shell steps in

One oil company making inroads in the Dutch geothermal market is Shell. The Anglo-Dutch major is on the lookout for greener investments and has committed to reducing the net carbon footprint of the products it sells. The company's historical experience in onshore exploration in the Netherlands puts it in a prime position to tap geothermal resources in its home market.

In September last year, Shell requested a geothermal exploration permit for a project in Rotterdam. The company says that, if the government grants the permit, it could start exploratory drilling at the end of next year and that this could lead to further exploration over the following years.

"Locally we do see chances and would like to contribute positively to the role geothermal resources can have in making warmth more sustainable, especially in the Netherlands, as it fits well in our experience and knowledge in the field of gas exploration," a Shell spokesman says.

Shell's involvement underscores a key rationale for the country's quest for new heating sources. Its Nam subsidiary, co-owned with ExxonMobil, is the operator of the Groningen gas field and so is directly impacted by the government's decision to gradually wind down production at the onshore field, which was once Europe's largest. Last year the Dutch government ordered the closure of the field by 2030, as drilling work there was shown to cause earth tremors that damaged buildings, triggering protests by local residents.

This year, output from the field will drop to less than 20bn m3, compared with a peak of 54bn m3, substantially reducing Dutch domestic gas supply, which is used mainly for heating.

Dual-play drilling

Vermilion has the most ambitious plans of any oil company active in the Dutch geothermal sector. The firm has submitted three geothermal exploration planning applications and expects to bring a project into operation next year. It plans to drill for both gas and warm water simultaneously, replicating a system which it has successfully carried out with oil exploration in France.

"We see very high value in dual-play scenarios with gas and geothermal exploration," says Michiel Ottevanger, commercial advisor at Vermilion and project manager for its Middenmeer project, where Vermilion is turning a depleted gas field into a geothermal site.

The company is able to utilise existing staff and equipment, deployed in gas exploration, to develop geothermal wells instead, as operations are very similar. "If more oil and gas companies get into the geothermal business, we have a good hope of professionalising it," he says.

Swedish utility Vattenfall, which has been operating in the Netherlands as Nuon, having acquired the Dutch energy provider 10 years ago, is also assessing Dutch geothermal potential. It requested an exploration permit last June. "This is in line with Vattenfall's ambition to utilise geothermal energy as a heating source. We are now exploring the use of geothermal energy and are assessing opportunities," a Nuon spokeswoman says.

Engie, which last year sold its oil and gas exploration arm to private-equity backed Neptune Energy, also applied for two geothermal exploration permits in the Netherlands last year, government records show.

With the geothermal industry slowly taking shape in the Netherlands, the Dutch government's strategy of reducing exploration risk has inspired other countries to follow suit. Denmark and Belgium have launched risk insurance models for geothermal exploration similar to the Dutch regime. "The success of the Netherlands convinced national authorities in these two countries that it is the right tool to launch a market," says EGEC's Dumas.

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