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Dutch government lowers Groningen gas output cap to 24 bcm

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Reuters: Friday, June 24, 2016

THE HAGUE, June 24 The Dutch government said on Friday it would lower the cap on production at the Groningen gas field, which has supplied up to 10 percent of European demand, to 24 billion cubic metres a year for the next five years.

The decision to lower the ceiling from 27 bcm, beginning on Oct. 1, follows a recommendation by the Dutch National Mines Inspectorate.

The Dutch government has been steadily reducing output at Groningen, prompted by a spate of earthquakes linked to production that caused extensive property damage in the northern province.

In a statement, the government said production at the field could be raised to up to 30 bcm in exceptional circumstances, such as cold winters.

Economic Affairs Minister Henk Kamp said that 30 bcm production would occur only in “the coldest winter you would expect to see in 50 years.”

Dutch gas for immediate delivery rose 6 percent but the rest of the Dutch gas curve was down.

“One contract is up (on Dutch gas) but the rest of them are down because production won’t go below 24 bcm and can go up to 30 bcm if they want,” a gas trader said.

The reduction to 24 bcm “is close to what was expected and the news that this is for 5 years may even provide some relief to markets that may have anticipated a prolonged decline to 2020,” said Oliver Sanderson, gas analyst at Thomson Reuters.

The decision must now be circulated to citizens and governments for a six-week discussion period, beginning July 1, before the decision becomes definitive.

Kamp said the state expects to lose 345 million euros ($380 million) per year in revenues due to the new cap. The Groningen gas field is operated by NAM, a joint venture between Shell and ExxonMobil.

In a separate statement, the Dutch National Mines Inspectorate said earthquakes have been decreasing in frequency and intensity in Groningen since the government began reducing production.

The agency noted that “after a number of years” it might be possible to once again increase production at the field to a maximum of 27 bcm — but only if seismic activity in the area has subsided.

Production in Groningen has been cut repeatedly from 42.5 bcm in the peak production year of 2014.

Earthquakes in the region remain frequent, but none has been larger than one that hit the town of Huizinge in 2012 measuring 3.6 on the Richter scale.

Estimates for damage to buildings in Groningen range widely, with NAM so far setting aside 750 million euros for damages. ($1 = 0.9051 euros)

(Reporting by Toby Sterling and Anthony Deutsch; Additional reporting by Nina Chestney. Writing by Thomas Escritt; Editing by Alexander Smith and Adrian Croft)

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