Industry Trend Analysis - Quick View: Groningen Cap Of Little Concern - JAN 2018

The Latest: The Dutch Council of State has ruled that the existing 21.6bcm per annum gas production cap on the flagship Groningen field will be temporarily extended. The ruling was made in response to a range of appeals heard by the council, including some for the reduction or complete stoppage of production, as well as one from the operator NAM requesting greater clarity on the government's position. The cap will remain in place while the Dutch economy ministry drafts a new policy for production from the field.

Implications: Markets were relatively unmoved by the ruling. TTF prompt and futures prices dropped immediately afterwards, but rapidly recovered (see chart below). From a wider European perspective, the impact of any change to the production cap will likely be limited.

On the one hand, Groningen output has already fallen significantly, dropping by more than 50% over the past five years. The European gas market is large, liquid and well-connected and has easily absorbed the loss, with minimal impact on prices. Europe also benefits from diversified sources of supply, including domestic output, LNG and pipeline gas from Russia, Norway and North Africa. This has (and will continue to) cushion prices from the production cuts at Groningen

Markets Shrug Off Groningen
Generic Front Month TTF, Selected Dates, EUR/MWh
Source: Bloomberg, BMI

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