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Dutch Court to Rule on Gas Output From Europe’s Biggest Field

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Screen Shot 2015-11-18 at 09.13.40Anna Shiryaevskaya, Fred Pals and Kelly Gilblom: 18 November 2015: Bloomberg.com

  • Final ruling Wednesday on output from EU’s biggest gas field

  • Government plans to decide on future production in December

A Dutch court will Wednesday decide on the future of Europe’s largest natural gas field as local residents seek to stop tremor-inducing production that’s damaging their houses.

The Council of State will rule on whether production from the Groningen gas field should be limited after in September hearing appeals from about 40 individuals, housing corporations and environmental groups. That comes before the government plans to next month outline future output at the field, which generated about 10.7 billion euros ($11.4 billion) in revenue last year and also supplies Germany, Belgium and France.

While the Netherlands progressively limited production at Groningen, the plaintiffs argued that production should be completely stopped or at least cut further, claiming safety should come above security of supply. The Dutch caps have so far failed to stop a slump in European gas prices amid abundant supply from Russia, Norway and Qatar.

“We are long in gas, but a further cut of Groningen gas could help to set the floor for gas prices,” Thierry Bros, a European gas analyst at Societe Generale SA in Paris, said by e-mail Monday.

U.K. gas for next-month delivery is trading 38 percent below its five-year average on ICE Futures Europe in London and the equivalent Dutch contract on the Title Transfer Facility hub 29 percent below its five-year average.

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The Economy Ministry in June lowered this year’s output target to 30 billion cubic meters (1.1 trillion cubic feet), from an original plan for 39.4 billion, based on advice given by the State Supervision of Mines. The government will decide on output from 2016 around Dec. 18, taking into account research that showed at least 31 billion cubic meters of Groningen gas is needed during a cold year, 2 billion cubic meters less than forecast previously, Economy Minister Henk Kamp said in a letter to Parliament Oct. 7.

Cuts at Groningen would affect neighboring regions in Germany, Belgium and France, which built their networks to use the low-calorific fuel the field produces and don’t yet have the capacity to convert enough richer gas from nations including Russia.

Belgium, which gets about a third of its gas from Groningen, is switching industrial gas to high-calorific gas as Dutch exports of low-calorific gas to Belgium and France will be fully phased out from 2024 to 2030, according to Fluxys SA, the Belgian network operator.

Loppersum Cluster

Groningen production dropped 28 percent year on year to 23.7 billion cubic meters in the first 10 months of the year, according to data on the website of Nederlandse Aardolie Maatschappij, or NAM, a venture between Royal Dutch Shell Plc and Exxon Mobil Corp. that operates the field.

About 400 million cubic meters was extracted from the Loppersum area of the field from May to October, the NAM data show. That comes after the court in April suspended all output from the cluster unless necessary for security of supply and not possible from other locations.

“The only thing that could be good for production is if the judge finds that you do not need to shut in specific fields,” Trevor Sikorski, an analyst at Energy Aspects Ltd. in London, said Tuesday by e-mail.

The first tremors in the Groningen province, home to 584,000 people, were reported in 1986, and the biggest, measuring 3.6 on the Richter scale, was in 2012.

“Based on the current information, there is a slight possibility of a quake with a magnitude of 5 on the Richter scale and a real possibility of a quake with a magnitude of 4.1,” Pieter van der Burgh, representing the Province of Groningen, said at a Sept. 10 court hearing in The Hague.

The Administrative Jurisdiction Division of the Council of State will issue its final ruling on Groningen at 10:15 a.m. in The Hague.

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