Dutch Government Decides to Cease Gas Production From Groningen Gas Field - A Legal Perspective

Europe`s largest onshore gas field in the province of Groningen, Netherlands, will be shut down by 2030, the Dutch government decided last thursday, 29 March 2018. The decision is the latest move in a more-than-decade long saga of resistance against gas production in the Groningen region. Earth tremors and quakes triggered persistent local opposition to gas production. The production company NAM is showing little appetite to challenge the decision in court.

In an announcement just before the Easter Holidays, the Dutch government pledged to phase out the biggest source of gas in the country by 2030. The Netherlands is dependent on gas as its main source of energy. In a press conference premier minister Mark Rutte called it an `important decision´, adding that the repercussions of gas production in Groningen, namely the earth tremors, are no longer acceptable.

Gas production from Groningen has been controversial since 2006, when first significant earth tremors were registered in the region. In the following years quakes intensified and properties were damaged around the North-East of the Netherlands. As a consequence, production from the field has already been roughly halved over the last 3 years. This process will now be intensified, leading to the scheduled shutdown of the field in 2030.

The field has been operated for decades under the so-called ‘Groningen’ concession, which was awarded in 1963 to the Nederlandse Aardoliemaatschappij or NAM (50 per cent Shell and 50 per cent Exxon Mobile) and included a number of conditions, such as the requirement that all gas should be sold to a new national gas company Gasunie (25% Shell, 25% Exxon and 50% directly and indirectly the Dutch State).[1] Another main requirement was that NAM and a company representing the Dutch state (now EBN) would establish a partnership on behalf of which production should take place. Under the terms of this partnership the state has a direct influence on the production of the Groningen gas field.  

The implementation of the Hydrocarbons Licensing Directive of 1994 led to the introduction of a new regime in 2003, governing the use of the subsoil, the new Mining Act, complemented by the Gas Act. Although the Mining Act added some new provisions and particularities, the old concession, in principle, remained in place in an amended form. Already back in 1996 the obligation to have a production and a so called measurement plan in place was introduced. These production plans, which have to provide details on production volumes and require approval of the responsible Dutch ministry, became the main lever of the Dutch government, besides its share in EBN, to steer production levels.

The NAM has been surprisingly amicable to the governments decision. Instead of challenging the decision on the basis that its business would be essentially rendered useless by the government´s new policy, the NAM said in a first reaction that`NAM´s activites consist of more than just producing gas from the Groningen field. Besides the Groningen field, the NAM is also producing from small fields onshores as well as offshores and is working together with its partners to supply the Netherlands with the energy it needs in the coming years´.

The decision of the government is posing a further challenge: gas from the Groningen gas field is rather unique in its composition, compared to other fields in the world. While most gas produced from the major fields in Russia, the North Sea and the Middle East has a high calorific value (so called H-Gas), the so called `Groningen quality` is gas that has a lower calorific value (so called L-Gas). It will thus be difficult to substitute the gas from the Groningen field. Adjacent countries like Germany and Belgium that have been supplied with L-Gas from Groningen in the past announced plans to phase out the use of L-Gas and retrofit and replace consumer appliances to make them fit for H-Gas. The Netherlands is now also facing this challenge, but instead of large-scale replacement of end-user appliances, the government decided to commission a number of new conversion plants to change the quality of imported H-Gas into L-Gas.

[1] Martha M Roggenkamp `Reducing Gas Production From the Groningen Field: The Need to Balance Safe Production With Supply Security` in Martha M Roggenkamp and Catherine Banet (eds.) `European Energy Law Report XI` (Intersentia, Cambridge 2017) 303/304.


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