Dutch Govt to Issue Draft Decision on Groningen
The Dutch government will publish its preliminary view on whether output at Groningen, Europe's largest gas field, needs to be reduced further in about two weeks, a Ministry of Economic Affairs spokesman said on Wednesday.
Small earthquakes linked to production have damaged buildings and already forced operators to cut output by nearly a third since 2014 to 27 billion cubic metres (bcm) this year.
On June 30 or July 1, the ministry will publish a preliminary view based on recommendations by Groningen operator NAM, a JV of Royal Dutch Shell (RYDAF) and Exxon, the National Mines Inspectorate, plus six other parties, the spokesman said.
A final decision due in mid-August will determine production ceilings at Groningen for the next gas year, which starts on October 1.
Dutch newspaper De Telegraaf reported on Wednesday that the National Mines Inspectorate, which has tended to favour bigger cuts, will propose lowering the cap on Groningen output to 25 bcm.
The National Mines Inspectorate's recommendation to the government ought to be made public next Friday, a source told Reuters.
Citing sources at the Inspectorate, the newspaper said NAM had proposed keeping production at 27 bcm but allowing for a rise to 33 bcm in the event of a cold winter.
The draft decision will be circulated to all eight parties making recommendations, including local governments, for further comment, the spokesman said, adding a final decision would then take six weeks.
Dampened Impact
"The 25 bcm decline in Dutch production during the past two years is comparable in scale to the increase in gas demand in Japan in the aftermath of the Fukushima Daiichi accident," which sent global gas prices spiking, the International Energy Agency said in its latest medium-term gas market outlook.
"The absence of any notable price response to the Dutch supply shock is a good illustration of the extent of oversupply that has accumulated in the market," it said.
Three gas traders surveyed by Reuters largely agreed with this assessment, pointing to record high Russian gas exports, up 15 percent this year, helping compensate for Dutch declines.
"It looks like Groningen production so far has already been low ...If they keep production at current pace, they won't exceed 25 bcm this year," coming in below the potential new ceiling, one trader said.
Yet even a cut of 2 bcm could constrain the field's ability to meet winter demand, he said.
Thierry Bros, senior gas and LNG analyst at Societe Generale (SGE.SG), says lost Groningen gas will be replaced by Russian supply.
"This will help prices to recover earlier than expected," he said.
Gas prices across Europe rose several percentage points on Wednesday mainly on the back of reduced supply from Norway.
(Reporting by Toby Sterling and Anthony Deutsch in Amsterdam, Oleg Vukmanovic in Milan and Nerijus Adomaitis in Oslo; writing by Oleg Vukmanovic)
