Musings: A Dutch Gas Bubble Could Create Global Indigestion
Making up for the potential €3.5 ($4.8) billion drain on the Dutch treasury over the next 3-5 years is the first order of business for the government. Expectations are that some of the lost income will be recouped by increased imports and exports that will find their way through the Dutch energy hub. The expectation that Groningen’s gas volumes would be cut has already boosted local gas prices, which should not be a surprise, but also a pain for citizens and businesses. The biggest beneficiary of the Dutch cut will be Gazprom (GAZ.BE), which sees being able to sell an additional 175 Bcf of gas to Europe, thus earning an additional $1-2 billion in revenues, and further strengthening Europe’s dependency on Russian gas. Oil-price-linked gas imports will keep energy prices in Europe high providing an environment in which slightly cheaper Russian pipeline gas can capture a greater market share.
Another unique aspect of Groningen that may alter the European market is its gas quality. The Groningen field produces low-calorific gas, used extensively in central heating boilers and for domestic cooking. Europe has limits in processing capacity to convert high-calorific gas into low-calorific gas through the addition of nitrogen. This raises the issue of how easily the lost Groningen gas output can be replaced with high-calorific imports. This increases the possibility of a two-tiered gas market for low- and high-calorific natural gas, at least for a while, until conversion capacity is installed, further complicating the European gas market.
The Netherlands faces another challenge from the Groningen production reduction, which is the potential impact on pricing of seasonal flexibility. The field is used in conjunction with two smaller fields – Norq and Grijpskerk – for storage of gas for winter demand. In a report on the impact of Groningen production on seismic activity following the August 2012 earthquake, the State Supervision of Mines made the following observation: “higher magnitude earthquakes seem to occur with a delay of six to nine months following a winter peak production period.” If this observation holds up under further examination, it raises the possibility of a greater impact from restrictions on peak production. This means Groningen’s flexibility to supply seasonal supply could be reduced. The industry will not know how, or if, production restrictions might impact supply for some time.
12345
View Full Article
WHAT DO YOU THINK?
Generated by readers, the comments included herein do not reflect the views and opinions of Rigzone. All comments are subject to editorial review. Off-topic, inappropriate or insulting comments will be removed.
Managing Director, PPHB LP
- Falcon Oil Declares Commercial Flow Test Results for Shenandoah Well
- UK Oil Regulator Publishes New Emissions Reduction Plan
- Japan Failing to Meet Corporate Demand for Clean Power: Amazon
- PetroChina Posts Higher Annual Profit on Higher Production
- McDermott Settles Reficar Dispute
- Macquarie Strategists Expect Brent Oil Price to Grind Higher
- US, SKorea Launch Task Force to Stop Illicit Refined Oil Flows into NKorea
- Russian Navy Enters Warship-Crowded Red Sea Amid Houthi Attacks
- Pennsylvania County Joins List of Local Govts Suing Big Oil over Climate
- Equinor Makes Discovery in North Sea
- Standard Chartered Reiterates $94 Brent Call
- India Halts Russia Oil Supplies From Sanctioned Tanker Giant
- DOI Announces Proposal for Second GOM Offshore Wind Auction
- Centcom, Dryad Outline Recent Moves Around Red Sea Region
- PetroChina Set to Receive Venezuelan Oil
- Czech Conglomerate to Buy Major Stake in Gasnet for $917MM
- US DOE Offers $44MM in Funding to Boost Clean Power Distribution
- Oil Settles Lower as Stronger Dollar Offsets Tighter Market
- UK Grid Operator Receives Aid to Advance Rural Decarbonization
- Chinese Mega Company Makes Major Oilfield Discovery
- VIDEO: Missile Attack Kills Crew Transiting Gulf of Aden
- Norway Regulator Blasts Proposal to Halt New Oil and Gas Permits
- Chinese Mega Company Makes Another Major Oilfield Discovery
- What Is the Biggest Risk to Offshore Oil and Gas Personnel in 2024?
- Vessel Sinks in Red Sea After Missile Strike
- Exxon Rights in Stabroek Do Not Apply to Hess Merger with Chevron: Hess
- Analysts Reveal Latest Oil Price Outlook Following OPEC+ Cut Extension
- Equinor Makes Discovery in North Sea
- Standard Chartered Reiterates $94 Brent Call