Dutch GasTerra Won't Renew Supply Deals

GasTerra will need to purchase on open market; company won't renew supply contracts.

Dutch gas trader GasTerra said on Wednesday it will have to buy gas on the open market to meet its contractual obligations after the Netherlands government ordered a production cut at the massive Groningen field.

The decision is a sign the company believes the government output cap, which sent Western European gas prices soaring when it was announced on Feb. 9, is unlikely to be reversed.

Spokesman Anton Buijs said GasTerra, which purchases and sells Dutch-produced gas, had contracted to sell a little less than 40 billion cubic metres (bcm) from the Groningen field, Europe's largest, in 2015.

The government unexpectedly mandated an output cut to 16.5 bcm in the first half of 2015 due to concerns about earthquakes linked to production, although it left the door open to an increase in the second half.

However, the idea of an increase is already politically unpopular and the country's Safety Board released a report on Wednesday criticising gas producers and government regulators for neglecting security concerns.

"We need to buy back gas we have sold already," Buijs said. He said he cannot disclose purchase amounts, as it is commercially sensitive information.

The day-ahead gas price on the Dutch Title Transfer Facility (TTF) rose 0.35 euros, or 1.5 percent, to 23.20 euros per megawatt hour. Month-ahead TTF prices surged more than 10 percent after the Feb. 9 decision.

MARKETS RELAXED

GasTerra said it will not extend existing long-term delivery contracts, or sign new ones, in light of the output cap.

"It underlines there's not a lot of hope for additional gas to come out of the Netherlands this year, or probably ever," said Trevor Sikorski, an analyst at UK-based consultancy Energy Aspects.

Still, he said markets were "reasonably comfortable and relaxed" and noted that Western European prices were lower than two years ago, despite the recent rise.

GasTerra is the biggest gas trading firm in the Netherlands and a major supplier to European countries. It exports the majority of its gas to Germany, Britain, France, Italy and Belgium.

GasTerra, half owned by the Dutch government with Shell and Exxon each holding a 25 percent stake, got more than half of its gas from Groningen in 2014, according to its annual report. GasTerra purchased 15.0 bcm of gas on the open market in 2014, up from 9.6 bcm in 2013.

The company also forecast further declines at smaller Dutch fields, which made up 30 percent of its purchases in 2014.

GasTerra accounts for two thirds of gas trading at the TTF, which last year passed Britain's National Balancing Point (NBP) as Europe's largest gas hub.
 

By Toby Sterling