Industry Trend Analysis - Groningen Threatens Long-Term Winter Supply Squeeze - SEPT 2017

BMI View : Over a five to 10-year horizon, c ontinued reduction of output from Groningen risks squeezing the winter European gas market, when combined with falling output from Norway and seasonal storage capacity constraints.

Appeals are ongoing in the Netherlands against the government's decision to curb production by an additional 10.0% at the country's flagship Groningen field. The operator NAM - a joint venture between Royal Dutch Shell and ExxonMobil - is contesting the decision, on the grounds that it is fundamentally ambiguous. The reduction, applicable from October 1, would apply to both the annual output ceiling and the additional cold winter flex quota. The ceiling has already been reduced a number of times, due to an increase in seismic activity around the field. Local residents are calling for production to be halted entirely.

While an outright production ban remains, in our view, unlikely, further caps are probable. The impact on overall production volumes will be relatively marginal, given that the largest losses have already been incurred. However, some strains may be felt over the winter months, given Groningen's traditional role as a seasonal swing supplier.

Groningen Caps Driving Output Decline
Netherlands Gas Production Forecast
f = BMI forecast. Source: EIA, National sources, BMI

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