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Groningen cap for 2017-18 left unchanged: Update

15 Nov 2017 12:15 GMT
Groningen cap for 2017-18 left unchanged: Update

Adds detail throughout

London, 15 November (Argus) — The Dutch Council of State has ordered that the Groningen gas production cap of 21.6bn m³ is to be retained for the 2017-18 gas year, but the economy ministry will have to develop a revised plan from next year.

The council annulled the revised production plan from May this year — which had lowered the cap to 21.6bn m³ — as well as the previous decision from September 2016 that would have set the limit at 24bn m³ for the following five gas years.

The economy ministry "has so far failed to properly substantiate" these decisions, the council said.

It will have 12 months to make a "new, better substantiated decision", the council said.

Until a new plan is developed, the council's "interim provision" will allow production in line with the amendment decision made in May.

This allows for production of 21.6bn m³ in October 2017-September 2018, with additional offtake of up to 5.4bn m³ permitted in a cold year.

The economy ministry's decision to reduce the output cap for the 2017-18 gas year by 10pc was based on advice from the State Supervision of Mines (SODM) as well as system operator GTS.

SODM had advised lowering the cap from the previous 24bn m³ following an increase in seismic activity in the Loppersum area last winter. And GTS said that production of 21bn m³ could be sufficient to ensure security of low-calorie supply in northwest Europe in a year with average temperatures.

But various appellants, among them the Groningen local government, had called for a lower output cap, saying this could help to enhance safety of residents in the area.

And the council today agreed with the appellants that the economy ministry had not considered safety of individuals in the region sufficiently in either of the two plans. The ministry should have "explained more clearly the risk for people in the earthquake zone", the council said.

It has also not "adequately explained why security of supply has been taken as the lower limit for the volume of gas to be extracted, despite uncertainty about the consequences" and had "failed to make clear potential measures to limit the demand for gas", the council said.

And the council said it was "unacceptable" that the ministry had initially set a production cap for five years without having sufficiently determined the earthquake risks related to such an output level.

Producer Nam had also appealed against the amended plan, saying that it had "no legal basis". And the lower cap would force the firm into a "technically impossible situation" in which it cannot ensure security of low-calorie supply while also keeping offtake from the field as flat as possible.

Nam said this morning that it is studying today's ruling and that a reaction will follow "at a later time".

The new Dutch government plans to reduce Groningen production to around 20.1bn m³/yr by the end of this cabinet period in 2021, it said in its coalition agreement in October.

Reducing domestic gas consumption — especially of low-calorie gas by switching customers to renewable energy or high-calorie supply — is to allow lower Groningen production, it had said.

The economy ministry will have to decide if an additional quality conversion site at Zuidbroek is to be built, which could allow for more pseudo-Groningen gas to be created by converting high-calorie supply. The previous government delayed a final investment decision. But such a facility would only become operational by the 2021-22 winter at the earliest, the government had said.

Output for sale to fall

Groningen production for sale — which includes Norg stock movements — in November-September may have to be considerably lower than a year earlier to comply with the cap of 21.6bn m³.

Output for sale in October was only slightly lower than a year earlier, which could require sharper cuts later in the gas year.

And Nam has lower stocks to draw on at the Norg storage site than last winter, following a separate ruling by the council in September, which could further reduce supply available for sale.

Higher utilisation of existing quality conversion facilities is to offset the lower cap, the economy ministry had said in April.

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Groningen production for sale mn m³/d