If the Dutch government decides to ramp up production from the Groningen field in the northeastern part of the Netherlands from 3.9 billion cubic meters (Bcm) to 7.6 Bcm this year to meet Germany’s request for additional volumes, the increase is not expected to solve Europe’s natural gas shortage.
“An increase in production from Groningen this year would help with storage and supply in general but it doesn’t solve the basic problem,” said Poten & Partners’ Jason Feer, global head of business intelligence at the shipbroker.
“There is no silver bullet that will solve Europe’s Russian gas supply problem, except allowing Nord Stream 2 to flow at full volume. That of course is a political decision,” Feer told NGI. “Domestic gas supplies are falling. Liquefied natural gas (LNG) is expensive, terminals are full, and there is not enough LNG to make up for declines in recent Russian exports, and certainly not enough if Russian gas is completely cut off.”
Russia supplies about a third of Europe’s natural gas. It has limited additional spot deliveries to the continent at a time when storage inventories are low. The continent is also grappling with a supply shortage at a time when geopolitical tensions between Russia and Ukraine are escalating, raising the specter of additional supply cuts. Along with LNG imports, a production increase from Groningen is seen as another lever to aid in Europe’s energy crisis.
Germany is Europe’s largest natural gas consumer and the biggest buyer of Russian natural gas. Last month, Germany approached the Dutch government seeking additional supplies from Groningen as it anticipates needing another 1.1 Bcm of natural gas this year.
Increasing Groningen’s gas output is a difficult issue for the new coalition government after Dutch citizens were promised the Groningen field would cease gas production this year, following years of earthquakes and tremors in local communities.
“The government has not yet made a decision,” spokesperson for the Dutch Ministry for Economic Affairs Jules van de Ven, told NGI. “A decision on whether to increase Groningen production this year will be made by the state secretary before April 1.”
The government’s decision to increase production will only come after Dutch research institute TNO investigates whether a production increase would cause further seismic activity, according to local news media reports.
“It is not the Dutch government granting or refusing additional deliveries to specific sectors or specific countries,” said GasTerra BV spokesman Jan Hendrik Annema.
GasTerra is a 50% state-owned trading firm that markets the gas from Groningen. The company has long-term supply contracts with Germany, Belgium, France, Switzerland and Italy, and was due to wind down after the government decided in 2019 to stop Groningen production.
“The government has to decide whether it will allow for a higher planned Groningen production than was agreed in September 2021…,” Annema told NGI. “Not where the produced gas within these limits is delivered and used.”
Whether GasTerra is obligated to fulfill Germany’s request under its long-term contract is not the issue. “In essence, these contracts are irrelevant in this case,” Annema said.
“Only physical demand from users and equipment that require L-gas matter. If the L-gas market (physical demand), whether Dutch or abroad, needs more gas than anticipated, this gas has to be delivered from the L-gas sources available, either through existing agreements, or by new agreements or via the Dutch Title Transfer Facility.”
Low calorific gas, or L-gas, is used in the Netherlands, and in regions of Belgium, France, and Germany. Gas imports from Russia, the United States, and Norway are high calorific. The closure of the Groningen field would result in a shortage of L-gas not just for Germany, but also for other regions of Northern Europe.
“The delay in the start-up of the Nitrogen blending plant in Zuidbroek also causes an increase of the planned/projected Groningen production, and not only for German L-gas demand,” but from other countries, Annema said.
The Zuidbroek nitrogen facility in the Netherlands would convert imported H-gas to L-gas, reducing the reliance on Groningen L-gas. The facility was due to be commissioned in April but was postponed twice because of Covid-19-related delays that caused a shortage in natural gas supplies to fill Dutch storage facilities. Zuidbroek is now expected to start-up in November.
It is not only Germany’s low storage levels, and lower than average Russian pipeline deliveries that has resulted in a gas shortage for the country. Germany’s Energiewende – its energy strategy to reduce emissions without relying on nuclear energy – is running behind schedule.
Although Germany plans to end the use of gas by 2027 under its Energiewende, and has been trying to decrease gas demand, it hasn’t been fast enough, Cyril Widdershoven, founder of Dutch energy and commodities consultancy Verocy, told NGI.
“And without Russian supplies, the only option is Groningen.”
© 2022 Natural Gas Intelligence. All rights reserved.
ISSN © 1532-1231 | ISSN © 2577-9877 | ISSN © 1532-1266 |