Dutch Court Limits Loppersum Gas Output in Groningen Region

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NAM's Loppersum Gas Extraction Site
Production caused 196 earthquakes in the region in the past two years, according to the Ministry of Economic Affairs. Photographer: Jasper Juinen/Bloomberg

A Dutch court suspended gas production from the Loppersum area of the Groningen natural gas field, Europe’s biggest, as earthquakes linked to production damaged homes.

Loppersum, which pumps less than 10 percent of the field’s output, may produce “small volumes of gas” only if “extraction from other locations is no longer possible and if necessary for the security of supply,” the Administrative Jurisdiction Division of the Council of State in The Hague said Tuesday on its website. Dutch and U.K. gas prices reversed earlier gains.

The court decision was taken after two out of at least 40 claimants asked for an accelerated motion on the case before a final ruling later this year. The hearing was held on April 1 when the judge said he didn’t favor a complete halt. Production caused 196 earthquakes in the region in the past two years, according to the Ministry of Economic Affairs. Groningen accounted for 61 percent of the nation’s output last year.

Economy minister Henk Kamp responded to the decision by saying the Nederlandse Aardolie Maatschappij, or NAM, will reduce gas production in Loppersum to a minimum level in line with the ruling, according to an e-mailed statement.

“The market view is that this decision will not have an adverse effect on current production levels,” Wayne Bryan, an analyst at Alfa Energy Group in London, said Tuesday by e-mail. “Status quo maintained.”

U.K. gas for winter delivery fell as much as 1.2 percent to 50.6 pence a therm ($7.48 a million British thermal units) on the ICE Futures Europe exchange in London. The Dutch month-ahead contract declined 2.3 percent to 21.52 euros ($22.93) a megawatt-hour after earlier rising as much as 0.7 percent, according to broker data compiled by Bloomberg.

Loppersum Cap

Loppersum output was capped at 3 billion cubic meters in 2015 from a total Groningen limit of 39.4 billion cubic meters. Dutch Finance Minister Jeroen Dijsselbloem said in an interview with RTL Television that he can’t see the impact of the ruling as extraction in the area has already been reduced.

Total Dutch output was 70 billion cubic meters in 2014, according to data from network operator Gasunie Transport Services. The Groningen field generated an estimated 10.7 billion euros ($11.4 billion) in revenue, according to data from NAM, the joint Royal Dutch Shell Plc-Exxon Mobil Corp. venture that owns 60 percent of the field, and the Ministry of Economic Affairs.

Operational Adjustments

NAM will study if operational adjustments are needed after the ruling, spokesman Ernst Moeksis said by e-mail. There will be a meeting on Wednesday between NAM, gas marketer GasTerra BV and Gasunie, GasTerra spokesman Anton Buijs said by e-mail.

“The interim relief judge saw no reason to stop gas extraction from the Groningen field in full,” the Administrative Jurisdiction Division of the Council of State in The Hague said Tuesday on its website. “If production were stopped in full, demand for gas from the Netherlands and neighboring countries could not be met.”

The two parties are appealing against the Ministry of Economic Affairs’s decision in December to reduce output to 39.4 billion cubic meters in 2015 from a target of 42.5 billion cubic meters.

“It seems to me that the Dutch court and the Council of State are being very cautious and responsible,” Zach Allen, president of Pan Eurasian enterprises, said by e-mail Tuesday. “Gas production is important to the economy of the country,” he said, adding he expected more reductions in the future.

Output Limited

The ministry limited first-half output to 16.5 billion cubic meters and said it will on July 1 decide on full-year ceiling of 35 billion or 39.4 billion cubic meters.

A definitive decision will be taken in the autumn, with the next hearing in September, court spokeswoman Wendy van der Sluijs said Tuesday, adding that the temporary ruling is no indication of the final decision.

“We’re extremely happy. This ruling is historic,” Nette Kruzenga, co-founder of Groningen Centraal, one of two groups seeking an immediate halt in Groningen gas production, said Tuesday, according to the ANP newswire. “It is clear the judge said that the situation around Loppersum is dangerous.”

Groningen output fell 34 percent in the first quarter to 9.41 billion cubic meters, NAM said April 7.

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