Energy Monitor July
Group Economics Hans van Cleef
To tap or not to tap 26 June 2015 Groningen field gas production cut; TTF gas price forecasts revised higher Russia continues to build the controversial gas roundabout of Europe Nuclear deal with Iran could increase OPEC market share
Minister Kamp surprises with gas production cut
Figure 1: Netherlands gas production (in bcm) 90 80 70 60 50 40 30 20 10 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 total gas production Netherlands gas production Groningenfield Source: TNO, www.NLOG.nl
Figure 2: Netherlands gas revenues (in billion euros)
At the end of 2014, Dutch Minister Kamp (Economic Affairs) lowered the cap on the Groningen gas field to 39.4 billion cubic metres (bcm) from 42.5 bcm. He also indicated later that production would not be permitted to exceed 16.5 bcm in the first half of 2015. After the mild winter, with consequent low gas demand, this was not a contentious decision. More interesting was this week’s decision to cap 2015 production in the Groningen gas field at 30 bcm. This is even lower than the expected cap of twice the H1 2015 figure (i.e. 33 bcm). This is possible because the surplus capacity of the gas storage facility at Norg, Drenthe, will also be available. The minister indicated that the safety of the Groningen citizens has the highest priority, and that this should be improved. A further lowering of gas production in the coming years therefore seems likely. At the same time, the minister has to take into account his obligation to secure the energy supply. Therefore, a complete shutdown of Groningen gas field production is not an option. The lowering of production does not completely eliminate the possibility of an earthquake. Obviously, a production cut has various consequences, including financial. This does not only concern the costs of damage as a result of earthquakes. These are compensated for by Nederlandse Aardolie Maatschappij (NAM). The costs involved in making all buildings within the risk area earthquake-proof are put at between EUR 6.5 and EUR 30 billion. It is not clear yet how these costs will be shared between the government, NAM and the occupants. A commonly cited rule of thumb is that lowering gas production by 1 bcm is equal to a drop in gas revenues of EUR 200 million. This has a direct impact on the Dutch government budget. Lowering gas production to a cap of 30 bcm would therefore mean that the Dutch treasury will see revenues drop by more than EUR 4.5 billion compared to 2013. Furthermore, gas imports will increase to meet all obligations (Dutch consumption and exports). These costs, combined with the lower revenues, must be compensated for somewhere. Fortunately there are some financial windfalls, so these higher costs will not automatically lead to increased austerity measures or a rise in energy taxes.
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Natural gas revenues Source: CBS Statline
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The final consequence is that lower gas production cannot be offset directly, and certainly not fully, by higher energy production from renewable energy sources such as solar and wind. Therefore, the Netherlands will become more dependent – now but especially in the future – on gas imports from countries such as Norway and Russia, or countries somewhat further away exporting liquefied natural gas (LNG). Norway has already increased its gas exports to Europe significantly in recent years. LNG can be imported via the Gate terminal in Rotterdam.