The Groningen field in the Netherlands has long been Europe’s most prolific gas field, feeding a low-calorie gas (L-gas) network that includes all residential and commercial demand in the Netherlands, as well as areas of Belgium, northwest Germany, and northern France.
In 2014 after local residents complained about an increase in the frequency of low-intensity earthquakes in the Groningen region, the Dutch government began applying a series of progressively tighter annual production caps on the giant field that has seen maximum production limits fall from 42.5 bcm in 2014 to 21.6 bcm for the 2017-18 gas year.
Given this steep reduction in allowable output, NAM, Groningen’s operator, was given permission to produce up to 6 bcm more L-gas in ‘colder years’—those with more than the mean of 2,300 heating degree days (HDDs). This flexibility was provided on the government’s expectation that in 95% of cold years, no more than 3 bcm of flexible supply would be required.
Over the last winter (Q4 16–Q1 17), Groningen production was up by 0.33 bcm y/y, suggesting output was above the implied cap of 1.83 bcm. Over the season, 83 days (40%) had HDD deviations above normal and a total of 225 HDDs above the mean (2,300) level were recorded on those days—equating to roughly 8 mcm of additional supply for every HDD above the daily mean.
Despite the winter flexibility provision, the scaling back of Groningen production has put the regional L-gas markets under considerable stress. Over the last winter, the L-gas balance needed higher Groningen production, a net draw on storage and greater use of gas conversion facilities.
Stocks at the Norg L-gas storage facility are now at historic lows, and it may not be possible to inject more gas y/y over the summer given that the more stringent Groningen cap is expected to cut output by another 1.5 bcm. As such, the downward trend in L-gas storage inventories is likely to be sustained over the coming years as Groningen production continues to be eroded.
One response is to convert high-calorie gas (H-gas). In 2015, around 6.5 bcm of H-gas was converted to L-gas by injecting nitrogen to lower the calorific value of gas. The volume of H-gas being converted are on the rise, with an estimated 9.2 bcm of L-gas produced in this way in 2016. While there is still some spare nitrogen injection capacity, particularly off-peak, the trend of nitrogen injection will continue, which will increase the associated network charges.
As Groningen production continues to decline though, the pressure to shift away from the L-gas network areas is going to grow. Already, some network areas in Germany are starting to convert from L-gas to H-gas is beginning and this should begin to spread elsewhere. Until then, the reductions in Groningen production carries winter supply risks for L-gas markets.