Article by Isis Almeida published 13 April 2015 by Bloomberg.com
The Netherlands, the biggest gas producer in the European Union, said Feb. 9 it would limit output from the field during the first half of the year, sending prices up 13 percent that week. Unrelated to the court case, the government has also said it would decide July 1 on cutting a full-year output cap to 35 billion cubic meters (1.2 trillion cubic feet), 11 percent below a previous target.
“Groningen represents further loss of supply, so if a cut is announced to 35 billion cubic meters, the market will react,” May Mannes, head of gas and liquefied natural gas analysis at Platts’ Eclipse Energy Group, said April 9 by phone from London. “But we see more Norwegian continental shelf gas, LNG supplies and Russian flows stepping up. We don’t expect anything dramatic.”
The Groningen field accounted for 61 percent of Dutch output last year, according to data from operating company Nederlandse Aardolie Maatschappij, or NAM, and grid operator Gasunie Transport Services compiled by Bloomberg. Production caused 196 earthquakes in the region in the past two years. Tuesday’s ruling will be binding and valid until a definitive judgment is made later this year.
U.K. gas prices, a European benchmark, rallied as much as 7 percent on Feb. 9 and 9.9 percent on Feb. 10 as the Ministry of Economic Affairs decided to limit Groningen’s first half output at 16.5 billion cubic meters. Production for the full-year probably won’t be higher than 35 billion cubic meters, according to Energy Aspects Ltd., a consultant in London.
Any decision to leave output unchanged at Tuesday’s ruling will have a “huge” bearish impact on prices, while a cut to 35 billion cubic meters will also be negative, said Thierry Bros, an analyst at Societe Generale SA in Paris. The market will probably not react if a cap is set at or above 32 billion cubic meters and anything below will be bullish, he said.
The accelerated motion being decided on on Tuesday called for production at the Groningen field to be completely halted, or at least in the Eemskanaal and Loppersum clusters. While it’s technically possible to shut down production sites, it’s harder to raise production when wells aren’t flowing at all, according to Sander van Rootselaar, a spokesman at NAM, owned by the Dutch state, Royal Dutch Shell Plc and Exxon Mobil Corp.
“The production limit for Loppersum is 3 billion cubic meters and for Eemskanaal 2 billion cubic meters and some of that has already been produced,” Mannes said. “If halting production in these two clusters is the result of the ruling, that could mean an increase in what we are currently expecting Groningen to produce.”
Groningen output fell 34 percent in the first quarter to 9.41 billion cubic meters, NAM said April 7. Output from the field last year totaled 42.4 billion cubic meters and the limit for this year currently stands at 39.4 billion.
GasTerra BV, the sole marketer of the fuel from the field, needs output to be from 27 billion to 33 billion cubic meters in 2015 to fulfill contractual deliveries, company spokesman Anton Buijs said April 1. Closing the Groningen field would “lead to mayhem,” with millions of households left in the cold, he said.