The rate at which gas production from Dutch small fields declines is much faster than the rate at which Dutch gas consumption declines. Dutch gas is effectively being replaced by Russian gas. This is not in the best interest of the Netherlands, neither from a financial nor from an environmental point of view. Current policies will not be able to preclude a rapid and near complete collapse of gas production from Dutch small fields.
Introduction. Dutch gas production has two components: the production from the giant Groningen field and the production from numerous small fields. The rapid decline of production from the Groningen field, due to production measures put in place to limit seismicity, has received a lot of attention. That the production from small fields is also rapidly declining, for very different reasons, has hardly received any attention.
For decades the Dutch government has stimulated the production from small Dutch gas fields. The aim of this successful “small fields policy” was to maximise revenue from Dutch gas and at the same time preserve the Groningen field as much as possible.
Prior to the year 2000 the production from small fields (both offshore and onshore) exceeded 40 BcM per year. After 2000, a gradual and slow decline started to set in, which was compensated by increasing the production from Groningen. By 2007, production had decreased to about 35 BcM and fell below that of Groningen for the first time in decades. By 2012, production had decreased to about 30 BcM. Until this time the decrease was solely due to geology. The early (larger) finds started to deplete and later finds gradually decreased in size.
A turning point for Dutch gas production: 2012. In recent years there has been a marked change in the operating environment for Dutch gas production. Prior to this shift Dutch gas was seen as a welcome source of revenue for the Dutch government, obtained from the production of a relatively clean fossil fuel. After this shift, gas became a polluting fossil fuel which one would only like to tolerate for a limited time, awaiting the completion (sooner rather than later) of the energy transition.
A number of elements play a role in this shift:
- The increasing realisation of the severity of the climate change problem and the increasing momentum to actually start tackling this problem, culminating in the Paris COP21 agreements.
- The increasing magnitude of Groningen earthquakes and the plight of people affected by these earthquakes, culminating in the 2012 Huizinge earthquake that damaged thousands of houses. This damaged the public image of gas in general and the image of the largest producer (NAM, a Shell ExxonMobil joint venture) in particular.
- The increasing unpopularity of large corporations such as oil and gas companies, perceived to make profits at the expense of local populations.
All this has been a gradual development. If I would need to pick a turning point though I would place it in 2012.
The figure below shows the production from small Dutch gas fields until 2012 and the potential scenarios for future production at this point in time. A large range of scenarios was possible (depending on future gas prices, the amount of government support for small field production and the success of several exploration plays). What has so far materialised is a scenario with a very low production from small fields. This decline is more severe than in the past and is no longer just related to geology.
Recent developments. The last few years have seen only small additions from new fields (with 2016 being an absolute low point). Exploration for new fields is rapidly declining. It seems increasingly likely that a number of operators will cease to explore altogether. In addition to geological factors (long term creaming of the area) a number of additional elements come into play, creating a perfect storm for Dutch small field gas production:
- Low gas prices
- The absence of support from the Dutch government
- Doubts on the long term future of the Dutch offshore gas infrastructure system
- Obtaining a permit for onshore drilling has become a very tedious and time consuming procedure; obtaining a permit for a new onshore production location has become even more difficult.
For the offshore gas production this can have a snowball effect. If an increasingly smaller number of fields has to carry the operating cost of an entire offshore pipeline system, at some stage the moment will arrive that this is no longer commercially feasible – increasing the amount of gas that is left in the ground. This moment is now rapidly approaching, especially in the case of continuing low gas prices.
Consequences for the Netherlands. The difference between the current and the late 2012 mid-case production profiles is about 170 BcM. Depending on future gas prices this represents a value of some 15 to 30 billion € (primarily to the Dutch state). I would estimate that by now roughly half of this volume has been irrevocably lost; half could still be saved if adequate measures are now taken in a world where oil and gas prices are slowly recovering. The public discussion on this issue has been minimal.
Whilst the energy transition will be a matter of decades, with an expected gradual decline of gas consumption in the Netherlands between now and 2050, the current decline in gas production in the Netherlands has become much more dramatic. Dutch gas is now being replaced by Russian gas and/or coal. That is not in the best interest of our country, neither from a financial nor an environmental point of view. Short term targets on emissions are becoming more difficult to achieve.
Coal is the most polluting fossil fuel; something that can only be mitigated, to a limited extent, by costly additional measures. Russian gas implies both additional CO2 emissions (roughly 12 % of the gas is needed to transport gas from Russia to The Netherlands due to the low efficiency of the Russian gas transport system) and additional methane emissions (methane losses related to transport over large distances in Russia are expected to be significantly higher than methane losses related to transport over short distances in The Netherlands). Effective emissions (CO2 equivalent) are estimated to be about 20 – 25 % higher compared to Dutch gas.
In conclusion, I would advocate measures that would stimulate the production of remaining gas reserves such as a preferential tax treatment for small fields or fields with low quality reservoir. The Dutch tax regime for gas producers is significantly worse than for instance the tax regime in the UK (50 % versus 30 % direct tax take). The policies that are currently in place are grossly inadequate to preclude a rapid and near complete collapse of gas production from small fields. Part of the revenues could be used to fund a much needed, but also costly and lengthy, Dutch energy transition.