A TNO study commissioned by the Ministry of Economic Affairs and Climate Policy has shown that the small fields offshore in the North Sea hold 16.8 billion cubic metres more natural gas than previously thought.At a time when the value of Dutch natural gas for the security of our supply and independence from foreign gas is becoming increasingly clear, this is good news for the Netherlands. The threat of a gas shortage in Europe is ever-present, but we also have a solution: ramping up production from our own fields. We asked René Peters (Director of Gas Technology at TNO) to help us understand the situation – why is there more gas than we first thought, and what does this mean for the Netherlands in the short, medium and longer term?
How come there's more gas than we first thought?
“There are two reasons for this. Firstly, gas producers have re-evaluated existing reserves, and found that it is now economically viable to produce more gas for longer from a number of fields,” says Peters. “Not just because gas prices are now high, around 2 euro per cubic metre, but also because the revenues and costs of production are now more in balance, meaning that production can continue for longer.” Over the past few years, operators have managed to reduce costs, for example, by switching to simplified and unmanned production platforms. “Secondly, the intensity of drilling campaigns has increased: in 2021, only two wells were drilled, but six wells were already completed in the first six months of 2022. And natural gas was produced from two of the wells drilled this year.”
How do we ensure that gas production from the North Sea remains stable?
“If you look at Dutch gas production charts, the volumes produced are declining. Last year, production was about 10% lower than the previous year. By increasing gas production, you can reduce or at least moderate the decline so that it does not fall further. Or it may even rise slightly. The new fields that have been taken into development will continue to produce even if the price were to fall somewhat, because production does not respond immediately to the price. It takes some time to follow the curve,” says René Peters. The government's current support for Dutch gas production in the North Sea also plays a role in this. “The question is, of course, whether that will be for the long term, or whether it will change again further down the line.”
Gas prices are now extremely high. Will they stay that way in the coming years?
This is a difficult question to answer because there are several factors that play a role here. LNG is often thought to be the only alternative to Russian gas, but this is not the case. "In the longer term, Russia will have an increasingly smaller role, as it is an unreliable supplier. Even when the war is over, gas will have to be sourced from elsewhere." LNG (liquefied natural gas) is therefore frequently mentioned as part of the solution. “The problem is, we have already reached the maximum production and transport capacity of LNG. The construction of a new LNG plant takes about four to five years, ” says Peters. We can see in Groningen how great the demand for LNG is. There, the last capacity of 1 billion cubic metres of gas in Eemshaven, a floating terminal, was sold a few days ago before the terminal has even been completed. “We can therefore expect to find ourselves in a market in the next four to five years where prices may be slightly lower than now, but still high,” says Peters.
In what timeframe will these gas reserves help us to secure the supply and independence from imported gas?
“There are three categories here,” says Peters. “From the existing small fields onshore, where you can expand or accelerate the fastest by using permitting procedures or technical adjustments, it will be possible to produce more gas within one or two years. Peters casts his gaze towards the North Sea as we talk about the medium and long-term horizons: “Then there are gas fields that have already been discovered in the North Sea. These can be developed and connected to the existing gas infrastructure within two to four years. Finally, you have the fields that still remain to be discovered. For these, it will first have to be demonstrated that they hold sufficient volumes of gas to be economically viable for production. The horizon for these fields is a period of five to seven years.”
On 15 July, Mr Hans Vijlbrief, the State Secretary for the Extractive Industries at the Ministry of Economic Affairs and Climate Policy, sent a letter to the House of Representatives proposing an acceleration plan for gas production in the North Sea, which would include measures for accountability and the safety of people, nature and the natural environment. This was followed by an outline memorandum for gas extraction from the small fields onshore and a transition plan for the gas sector in the longer term. These are positive developments, because the more predictable and clearer the government is, the better it will be for our energy supply in the years ahead. Element NL is in discussions with the State Secretary on all these topics.