Page 5 - EurOil Week 34 2022

EurOil COMMENTARY EurOil

Giant Dutch gas field could prove

to be Europe’s saving grace

Europe has a one key ace in the hole when it comes to expanding domestic gas supply

NETHERLANDS EUROPE faces what could be its greatest winter decree on making payments in rubles. Fortu-
of discontent, with energy prices continuing to nately it has been able to offset the loss of these
WHAT: surge to ever greater heights, putting the con- volumes with LNG supply and shipments from
The Dutch Groningen field tinent at risk of a deep recession later this year, Norway and other neighbours. But while it is
could flow 20-25 bcm per especially if the weather proves severe and Russia close to meeting the EU goal of filling its gas
of gas. further cuts its natural gas supply. Governments storage facilities to 80% of capacity by the start
are fast-tracking new LNG projects, turning shut- of November, with 72% capacity utilisation as of
WHY: tered coal-fired power plants back online and August 20, this still means it currently only has
This could replace around asking their citizens to conserve as much energy enough gas in stock to cover three months of
a third of the Russian gas as they can. But there has been relatively little average daily consumption, and significantly less
that currently flows to attention paid to how Europe’s largest gas field given it is now facing the colder part of the year.
Europe. could be brought to bear to help ease the crisis. Germany too would greatly benefit, as Rus-
The field in question is of course Groningen, sia’s reductions in gas flow via the Nord Stream
WHAT NEXT: a giant gas reservoir in the north of the Nether- pipeline have pushed its energy system to the
The initiative needs to lands that has the capacity to produce a sixth of brink of collapse. After all, Germany used to
start with the Groningen the gas that Russia exported to Europe last year, be a major buyer of gas from Groningen, and
community. and could replace as much as 40% of the current the field’s phased closure has left the country
low level of supply that Moscow is currently increasingly dependent on Russian supply to
sending. First exploited in the 1960s, the field’s fill the gap. The Netherlands could in turn score
output peaked at 88bn cubic metres in 1976, and political points with Germany and the rest of
as recently as 2013 it still flowed 54 bcm. Europe by coming to the rescue with emergency
The problem, though, is that production gas, just when it is more sorely needed.
activities at the field over the decades caused Still, the Dutch government has shown reluc-
earthquakes that resulted in substantial prop- tance to take the initiative here. After all, it is the
erty damage, though for a long time they were Groningen community that has borne the nega-
largely ignored by the Dutch national govern- tive consequences of production activities at the
ment. National authorities finally acted in 2014, field, and there is still considerable ill-will, given
imposing caps on production to minimise the that most of the revenues earned at the project
risks of quakes, and the field’s operators Shell over the decades went straight to the national
and ExxonMobil have had to deal out hundreds government and were not put to local use.
of millions of euros in compensation since then. The solution, then, is a generous offer of com-
The production limit for the current gas year pensation to residents for allowing Groningen’s
ending October 1, 2022 is set at only 7.6 bcm, supply to be restored. While the field’s operation
and is due to be curbed to just 2.8 bcm in the fol- led to property damage, there has been no loss
lowing year, after which the field is due to cease of life. With gas prices spiking at over $2,700 per
operations completely. 1,000 cubic metres, and Gazprom warning that
However, with Europe in the grip of its worst they could reach as high as $4,000 per 1,000 cubic
energy crisis in memory, the field’s restoration to metres this winter, significant sums could go to
full capacity may be a step that is taken. ExxonMo- citizens in Groningen, all the while easing the
bil and Shell that its production could be raised to burden of energy costs on all Dutch consumers,
20-25 bcm per year at short notice, which would and across Europe. The offer of such compensa-
go a long way towards easing the current supply tion in the middle of a larger cost-of-living crisis
crunch, or offsetting lost Russian volumes if Mos- might prove to win over residents that have so far
cow decides to turn off the gas tap to the continent opposed a change in policy regarding the field.
completely. Put in context, Russia sent just 3.6 bcm It seems likely that, sooner or later, the Dutch
of gas to Europe in July, marking a 23% decline government will revise its plans at Groningen,
month on month, after making hard and fast cuts even if it does not restore the field to its full
over recent months. If Groningen were restored to capacity. But negotiations between national
full capacity, the field could contribute 1.0-1.5 bcm authorities, the field’s operators and local com-
of gas each month. munities will surely take time. The government
The Netherlands has a clear incentive for would therefore do well to initiate the pro-
taking this step. It lost its own gas supply in late cess now, before the energy crisis becomes too
May after refusing to comply with the Kremlin’s costly.™

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