Dutch walk tightrope on Europe’s largest gasfield

Good morning and welcome to Europe Express summer edition, coming to you every Wednesday through the month of August. I’m Andy Bounds, the FT’s EU correspondent covering trade, Brexit and the Netherlands.

Every time Gazprom lowers the flow through its pipelines to Europe, the pressure on the Dutch government rises.

The country is home to the continent’s largest gasfield yet, as the EU runs dry, the current plan is to cut production from September 30 and close it altogether in 2023.

The Groningen gasfield has caused hundreds of minor earthquakes since the 1980s as the soft ground subsided when gas was extracted.

Thousands of homes, schools and other buildings have been damaged, forcing the government and operator NAM (a joint venture between Exxon and Shell) to pay billions of euros in compensation. Efforts to make homes quake-proof continue slowly.

The government’s failure to acknowledge the issue after a 3.6 magnitude earthquake in 2012 has further exacerbated tensions with residents in Groningen, in the north-east of the country, far from the political powerhouses of Amsterdam and The Hague in the west.

Pressure from local politicians and people forced the government in 2013 to promise to reduce production and in 2018 to say it would close the field. A parliamentary inquiry into the issue began public hearings in July. Chaired by Green MEP Tom van der Lee, it has broken up for the summer but will hear more witnesses between August 29 and October 14, including former and current ministers, NAM executives and victims. The report will follow in the new year.

The public hearings make any decision to increase extraction even trickier.

Compounding the problem, the Netherlands does not need the gas. It would instead send it to Germany, which is desperately seeking to fill the huge supply gap as Russia is reducing supplies. Germany faces a recession and is already preparing for gas rationing and switching off some industrial users.

Dutch officials say it would be easier to make the case to the population if Germany agreed to reopen its nuclear power stations, which would save gas used to generate electricity. The coalition government in Berlin is finally considering it.

Hans Vijlbrief, Dutch state secretary for mining (and known in Brussels for his stint as Eurogroup working group chief from 2018 to 2020), has walked a tightrope so far.

In June he told parliament that he was reversing a decision to switch off some production sites in Groningen, leaving all 11 on “pilot light”. That would lead to the extraction of 2.8bn cubic metres in the year to September 30 2023, down from 4.5 bcm this year. “Due to the geopolitical situation caused by the war in Ukraine, it is important to remain flexible,” he wrote to MPs.

He also refused to commit to closing it in 2023 because of the uncertainty, but said that was his intention.

A 20 per cent reduction in gas consumption because of the warm summer and high prices that caused people to cut back has avoided the need to boost production this year.

A further complication is that a facility needed to replace Groningen gas has yet to be built. Groningen gas has high nitrogen content and less methane, making it a low-calorie gas. Home boilers in the Netherlands are geared for this and cannot use imported high-calorie gas. The dedicated plant extracting nitrogen from the air to blend with the imported gas will not be producing until October, delayed from April.

The Hague has taken its own measures. It has lifted the cap on coal-fired power stations, which were restricted to a third of their generating capacity, and is building and expanding LNG terminals and storage facilities. Vijlbrief expects these to be 80 per cent full at least by November.

It is also likely to offer to pay industrial customers to switch off. But business warns that might not be enough.

Cees Oudshoorn, managing director VNO-NCW, the confederation of Dutch industry and businesses, told Europe Express: “When these measures seem not enough and there is no other option, we will have to look at the Groningen field again.

“The Netherlands has a large industrial sector and we have concerns about the possible shutdown of large factories that use gas if Russia really turns off the gas switch.” 

Gasunie Transport Services, which owns gas infrastructure, said in July that even if Russia turned off the taps completely, “there will be no gas shortage in the Netherlands next winter” as long as the new infrastructure was built.

The Netherlands uses around 40 bcm a year. LNG can provide 24 bcm while coal burning will save 2.6 bcm used to make electricity. The rest can come from storage and domestic production.

As for Germany, GTS director Bart Jan Hoevers noted that the pipes have limited capacity to take Dutch gas. “Here in the Netherlands, we are happy to help get more gas to Germany [but] 35 bcm is the maximum that the domestic German gas transmission network can handle,” he said.

Micky Adriaansens, the junior economy minister, told Europe Express that solidarity between EU members was important. “Every country in the EU is thinking about how to reduce their gas usage and how to prepare for what may come.” While the Netherlands “wouldn’t have to” help Germany out, she said, it might have no choice.

“We’re looking now into the interdependencies because we’re so connected in Europe. So it would not be a good thing for them if we closed down something critical, and the other way round it’s also not good. So we’re talking about what the impact might be from what.”

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