Page 6 - FSUOGM Week 41 2021

FSUOGM COMMENTARY FSUOGM

From Dutch earthquakes to a

UK fracking ban: how declining

European gas supply has

contributed to the current crisis

Some European politicians might overlook it, but a contributing factor to the current crisis
has been years of policies that have stifled investment in local gas supply

EUROPE THERE are many underlying causes behind the prices and freed gas prices to soar into the strat-
current gas supply crisis unfolding in Europe. osphere. In short, the last two years have created
European gas output, A “V” shaped market has seen global gas a perfect storm for the gas market.
excluding contributions demand surge on the back of the post-corona- All of Europe’s biggest gas fields are in decline.
from Russia and other virus (COVID-19) economic recovery, driven North Sea fields that were first developed in
CIS states, has fallen by growth in LNG imports in China and other 1990s or even earlier are now mature, yielding
almost 30% in the last Asian markets. Gas producers have been slow to less gas at an increasingly high cost. But many
decade. ramp up output in response, while Russia’s Gaz- in the gas industry point instead to insuffi-
prom has faced criticism for keeping some sup- cient investment in new production, largely on
ply back – whether simply to drive up prices or account of environmental concerns. The EU’s
to put pressure on European regulators to clear new Green Deal has only made a new problem
the way for the launch of the controversial Nord much worse. The EU is eager to phase out the
Stream 2 gas pipeline. use of gas and other fossil fuels over the coming
However, there is another factor that many decades as it strives towards net-zero emissions
EU politicians are keen to dismiss as a cause: by 2050. But as the current crisis has shown, for
years of underinvestment in domestic gas sup- the time being consumption remains robust.
ply. Gas production in Europe has been falling But curtailments in local gas production over
for decades. In 2020, European output excluding the years have left Europe more dependent on
contributions from Russia and other CIS states imports than ever before. In the EU’s case, 90% of
amounted to just 218.6bn cubic metres, accord- the bloc’s gas now comes from overseas.
ing to BP’s statistical review, down nearly 30%
from the level in 2010. Dutch earthquakes
Demand for gas has spiked this year as the For many decades, the Groningen field off the
business has been hit by a multiple whammy: coast of the Netherlands was Europe’s largest gas
Europe began 2021 with low storage levels after producer. Its output hit a peak of 88 bcm in 1976,
the collapse in demand and prices in 2020; LNG but production activities led to earthquakes,
has been largely drawn off to Asia by even higher causing damage to property in the area.
prices; the demand rebound caused by a recov- That was why the Dutch government in 2014
ery from the coronacrisis was far stronger than ordered Groningen’s operators, Royal Dutch
anyone anticipated; and Russia’s Gazprom is Shell and ExxonMobil, to start reining in sup-
running up against its production and export plies. Originally, the field’s full closure was antic-
constraints. That created the conditions for ipated in 2030, but this was brought forward in
prices to spike in the summer when it became 2019 to 2022.
clear the glut of 2020 was rapidly turning. And While the Netherlands ordered Groningen’s
all this was made even worse by the sharp decline closure on account of the earthquakes, broader
in the EU’s indigenous gas production. The fact climate concerns influenced the government’s
that last year was the year the EU decided to go 2019 decision to fast-track the process. What is
over from long-term contracts to trading gas on more, despite the current crisis, the government
a spot market only removed a built-in cap on has insisted that Groningen’s closure will go

P6 www. NEWSBASE .com Week 41 13•October•2021