Material additional imports from Russia into northwest Europe are dependent on the development of Nord Stream 2, as the Yamal-Europe and Nord Stream pipelines are currently running close to full capacity. Conversely, Europe could benefit from a rebalancing global LNG market that will result in more LNG available for imports through to 2020.
Regardless of whether alternative supply will be available, the pace of reducing low-calorie gas production at Groningen will depend upon the ability of transmission system operators in northwest Europe to switch customers to high-calorie gas. It is likely that Groningen’s production will reduce gradually over the next four years, limiting the impact on security of supply and prices. The SoDM’s recommendation has other implications, including the remaining value of the field and on receipts to the Dutch treasury.
Prior to the announcement, we estimated Groningen’s remaining value at US$19 billion (NPV10, January 2018).
Who has a stake in Groningen?
- Shell (30%)
- ExxonMobil (30%)
- Dutch state participant, Energie Beheer Nederlands (40%)
Groningen has been a dependable source of cash flow for over 50 years for Shell and ExxonMobil, and ranks in both their top 10 assets globally by value. However, it is the effect on the Dutch state that will be felt most acutely. A cap of 12 bcm per year could diminish the remaining government take by over US$5 billion over the life of the field, and is further compounded by the remaining value Energie Beheer Nederlands stood to realise.
Economy Minister Eric Wiebes told reporters that the Dutch government will try to cut annual output at Groningen to 12 bcm as quickly as possible. He did not give a timeframe for implementing the cap, telling Dutch media he would provide further guidance by the end of March.