• Print
  • Decrease text size
  • Reset text size
  • Larger text size

The shaky demise of domestic gas production in The Netherlands

The discovery of a giant gas field in 1959 located in the northeast of the Netherlands was both a blessing and a curse for the development of the Dutch energy sector. The 9th biggest gas field in the world positively influenced Dutch industry and provided domestic households with cheap energy. Decades of extraction, however, also caused significant seismic activity. This sparked political outrage and ultimately led to the demise of the Dutch gas sector.

The tipping point was reached this year after an increasing number of tremors in the extraction zone created dangerous situations. The SodM (the regulatory organisation of mining) advised to quickly reduce the volume of extraction to improve safety. Moreover, the Dutch government decided to completely stop the production at Groningen by the end of 2030.  Despite this development, natural gas will remain an important part of the Dutch energy mix on the short to medium term. Imported gas through either pipelines or LNG will substitute domestic production. The decision to reduce extraction and increase imports will have significant economic and political consequences for the Netherlands as the former gas exporting champion of the EU.









Figure 1: Tremors as a consequence gas extraction 

Gas: Bedrock of the Dutch energy mix

The formerly hidden wealth of the Netherlands sustained an addiction leading to natural gas encompassing almost 40% of the energy mix versus 24% of the global average. Cheap gas, for example, has aided Dutch agricultural innovations, among others, greenhouses in becoming the second biggest food exporter in the world. Additionally, in the sphere of gas trade the Netherlands is an important player on the European stage as the country hosts an extensive and well-connected infrastructure.

Gasunie Transport Services, a domestic state-owned company, currently maintains one of the most elaborate and technologically most advanced gas infrastructures in the world. The system comprises of 15.500 kilometres of pipeline in the Netherlands and Germany, significant interconnectors with foreign producers and partners in Norway, Russia, Belgium, and the UK, connection with LNG regassification plant ‘Gate’ in Rotterdam, and underground storage capacity.

Furthermore, the Dutch gas-system is even more technically advanced when taking into account the unique composition of Groningen gas which is of low calorific value while internationally high calorific is the standard. Customers in the Netherlands can receive both, which obviously needs to be separated. Several nitrogen injection facilities mix foreign gas to achieve a lower calorific value so Dutch households and some industrial users are able to use the gas in appliances and machines. At the same time, high calorific gas is transported to the remaining industrial users with specific needs.

The existence of a sophisticated infrastructure, strategic location of the Netherlands, and significant reserves of its own, gave policy makers food for thought. In 2006 the Dutch government officially approved the ‘gas roundabout’ strategy. The Netherlands, was the expectation, would remain an important actor within the European gas market for decades to come. Cheap energy and an elaborate infrastructure have been a boon to Dutch economic development. 

Environmentalism kicks off

Environmental awareness is not uncommon within Dutch society. However, this has not always translated into a green economy. The Netherlands is one of the worst performers in the EU when it comes to per capita CO2 emissions. However, change is around the corner with a new watershed moment in recent weeks with the unravelling of the climate agreement between civil society, industry, and government: coal fired powerplants will be closed until 2030 and natural gas will not be part of the energy mix at the latest in 2050.

Even more significant for the short term, is the sharp decline of production from the Groningen field spanning a couple of years. The challenges and changes ahead are even more staggering when considering the amount produced from this field alone in 2013 was almost 50 billion cubic meters bcm. To put this into perspective, the Netherlands consumed nearly 40 bcm in 2017. The substitution of this massive volume on the midterm is a boon to exporters of natural gas and a monumental change for the Dutch society on the long term. Within 32 year 7,6 million households have to detach from the gas network. Although this goal is spurred by environmental friendly policies, the opposite will be achieved according to some studies.

The figure below shows the extent of ‘electrification’ of the Dutch society and the necessity for an energy source to supplement renewables on the basis of three models: fossil fuel, full electrification, and hybrid. The first model ‘fossil fuel’ visualizes electricity usage without a changed pattern of oil and gas consumption. Full electrification is a scenario in which the entire society (where possible) is powered by electricity. Lastly, hybrid visualizes a mixed scenario.

Figure 2: Three scenarios of electrification 2016 - 2050

The transition from gas to electricity in households, electrical vehicles, and the expanding economy will obviously require more power. Ironically the closure of coal and nuclear power plants in the coming decade will strengthen the position of natural gas as the only relatively clean source of energy to power these changes. The growth of only renewable sources will not be sufficient to fill the gap with consumption due to its intermittent nature.

From export to import

Currently, the Netherlands consumes approximately 40 bcm of gas yearly, which will only grow until 2030. Some researchers predict that by 2050 the Dutch still will be consuming around 30 bcm due to reasons described above. Alternatives are available but come with an economic and political cost.  

Two options are available to substitute domestic gas: shipped LNG and pipeline imports. In the case of the former, the harbour of Rotterdam is home to the only large-scale LNG regassification location in the Netherlands: the Gas Access To Europe facility or Gate. However, with a capacity of 12 bcm throughput per year, Gate is only able to provide just a part of the required volume. This picture becomes even more dire when taking into consideration that the importance of LNG as an alternative clean fuel for road transportation is rising and will have to be provided from the Rotterdam facility as well.

The only option on the short term is pipeline gas from Norway and Russia. While the former’s additional export capacity is limited, the latter possess the necessary volumes and is more than willing to export. However, strained relations with Moscow over Ukraine, Syria, and the downing of flight MH17 do not make Russia the preferred supplier in the sense of energy security and even contradict EU policy to reduce dependence on Russian gas. Not everybody agrees though.

Record amounts of Siberian gas have been exported to Europe in recent years including to the Netherlands. The extremely cold weather sweeping over large parts of Europe in February 2018 exemplified the ‘swing’ status of Russia in the European gas market just as Saudi Arabia is in the global oil market: excess capacity to export large volumes on short notice if necessary. The interest of European energy companies in the expansion of the Nord Stream 2 pipeline is another sign of the market’s trust in the future of Russian gas. Royal Dutch Shell, OMV, Engie, Uniper and Wintershall will all provide 10% each of the multibillion expansion project.  

Choices and restrictions

The Netherlands is uniquely positioned within Europe between several large economies and a sophisticated infrastructure to service a variety of customers. Combined with a large storage capacity using for example empty fields and salt caverns, the Dutch are able to fulfil a pivotal role in Northwest Europe.

Besides becoming a gas roundabout and servicing neighbouring countries, imported natural gas in large quantities to supplement domestic Groningen production will also be a fact of life within a couple of years. Theoretically it can come from several sources, but in practice and in the short-term Russia will be the prime beneficiary despite Dutch and European willingness to reduce dependency. 

Although the recently formalized climate law states that gas will not be part of the energy mix from 2050 onwards, technological and economic developments show otherwise. Especially due to environmental concerns, natural gas is currently the only viable alternative to supplement electricity production with a high energy density that is able to be stored and transported over long distances. Unless innovative solutions provide a game changer, gas will remain an important source of energy in the Netherlands for decades to come.

About the author 

Vanand Meliksetian – Consultant Energy & Utilities

Vanand has worked for several energy companies both in his role as consultant and through direct employment. He has among others been involved in projects concerning regulatory affairs, business transformation, and market research. Vanand’s background in governance and policy combined with knowledge of the energy sector provide him the tools to execute high-level multidisciplinary analyses. 


0 comment
Post a comment

Plain text

  • No HTML tags allowed.
  • Web page addresses and e-mail addresses turn into links automatically.
  • Lines and paragraphs break automatically.
Enter the characters shown in the image.
Back to Top