Netherlands Upholds Gas Output Limits at EU's Biggest Field

  • Government to limit output to 27 billion cubic meters a year
  • Cap in line with limit decided by Hague court last month

The Netherlands upheld a cap on gas extraction from Europe’s biggest deposit in the north of the country to minimize the risk of earthquakes.

The government will adhere to the limit set by a court last month that output in the 12 months through September should be cut by another 18 percent, while long-term production will be decided on by October, it said Friday in a statement. Prices fell after the announcement.

While the cuts limit indigenous European gas supply and have already pushed the EU’s largest producer of the fuel into importing a record volume this year, they aren’t expected to drastically affect prices. The region has enough gas for what is forecast to be a mild winter.

“We’re reducing extraction further and taking the necessary measures to ensure we’re less dependent on Groningen gas for energy,” Minister of Economic Affairs Henk Kamp said in an e-mailed statement. “We also had to take account of security of supply for the millions of households and businesses in the Netherlands and abroad which depend on Groningen gas.”

Dutch gas for front-month delivery fell as much as 2.2 percent to 15.35 euros ($16.65) a megawatt-hour on the Title Transfer Facility hub, the lowest since July 2014, according to broker data compiled by Bloomberg. The U.K. summer 2016 contract fell as much as 2.3 percent to a record low 31.5 pence a therm on ICE Futures Europe.

As “temperature forecasts show a mild winter ahead I can’t see the loss of this supply supporting the market too much,” said Sam Berry, a trader and account manager at British Independent Utilities in an e-mail. “Should anything unexpected happen, hopefully production at Groningen can increase anyway

Limited Production

The Netherlands has progressively limited production at Groningen, which also supplies Germany, Belgium and France, as residents argue that production should be halted to ensure their safety. The caps made the European Union’s biggest natural gas producer a net importer of the fuel, reliant on gas purchases from Norway, Russia, Algeria or Qatar.

Production at the Groningen field fell 30 percent in the first eleven months of the year after cuts imposed earlier, according to Nederlandse Aardolie Maatschappij, or NAM, a Royal Dutch Shell Plc and Exxon Mobil Corp. venture that operates the field.

Council Ruling

The Council of State said Nov. 18 that output from Groningen should be temporarily limited to 27 billion cubic meters (950 billion cubic feet) for the year from Oct. 1. That’s about 6 percent of expected European Union gas use this year. It may be raised to to 33 billion cubic meters, the cap set by Kamp in June if the gas year that started Oct. 1 is “relatively cold,” according to the ruling.

By 2020, production could be cut to as low as 18 billion cubic meters, as part of efforts to reduce dependency on gas from the field. The Netherlands has made accords with Germany to cut supplies from Groningen by 10 percent per year from 2020 so that they will no longer receive fuel from the field by 2030, Kamp said. The minister will also talk to France and Belgium.

“Agreements have also been made with France and Belgium to reduce offtakes from 2024 and I will discuss with them whether that can be brought forward,” Kamp said Friday in an interview. “We have had customers for Groningen gas for many years. Clients that are as dear to us as those in the Netherlands.”

Stronger Earthquakes

The Dutch State Supervision of Mines warned against cutting Groningen output too quickly, saying it could cause additional problems.

“It would be imprudent to reduce production to such an extent as to necessitate large and rapid fluctuations in production level during colder periods in order to meet the demand for gas,” Inspector General Harry van der Meijden said in a statement. “This could likely cause additional and possibly stronger earthquakes.”

Kamp said the Economy Ministry had taken the group’s advice into consideration when deciding production limits. The Dutch government is taking steps to make other sources of energy available, including constructing a nitrogen plant to convert imported natural gas for use on local boilers and stoves.

The Economy Ministry in June cut this year’s output target to 30 billion cubic meters from an original plan for 39.4 billion.

The maximum volume allowed was 33 billion, but this included an option to withdraw 3 billion from a storage site not operational for some time last year.

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