Shaken, Not Stirred: How Earthquakes Affected Natural Gas Production in the Netherlands

On January 17, the Dutch Minister of Economic Affairs Henk Kamp announced his plans for the coming years for the extraction of natural gas from the enormous Slochteren field in the northern province of Groningen. In recent years, the extraction of natural gas in the Netherlands has become a topic of fierce debate and demonstrations, fuelled by an increase in the number and severity of local earthquakes. In the summer of 2013, the region of Loppersum, where most of the natural gas exploitation is concentrated, was shaken by a series of earthquakes, the gravest reaching a magnitude of 3.9 on the Richter scale. This spike in seismic activity led to several geological and safety studies, which Minister Kamp reportedly analyzed over the past weeks.

The Slochteren field was discovered in 1959, and at the time contained 100 trillion cubic feet (tcf) of natural gas. It is the largest natural gas field in Europe, and substantially contributes to the Netherlands being the largest producer of natural gas in the EU. Since its discovery, the field has been extracted by the Dutch company Nederlandse Aardolie Maatschappij (NAM), which is jointly owned by Royal Dutch Shell and Exxon Mobil. In the early 1960s, then-Minister of Economic Affairs Jan Willem de Pous installed a depletion policy, effectively putting a cap on the maximum amount of natural gas to be extracted from the field in order to preserve some of the nation’s riches for future generations. This policy has been in place ever since, though in recent years high gas prices, substantial budget deficits and an occasional severe winter have increased the amount of natural gas extracted from Dutch gas fields, exceeding official limits. As a result, in 2013 a record amount of 54 billion cubic meters (bcm) was extracted.

Natural gas production is essential for energy supply in the Netherlands. The vast majority of Dutch citizens use natural gas for heating and cooking. Historically, the share of natural gas in electricity generation has been significant, hovering around 60 percent. Recently, the share of cheap coal has been rising in the Netherlands, as an indirect consequence of the spur in U.S. unconventional gas production, which made U.S. coal supplies available for global markets. In addition, neighboring countries such as the United Kingdom, Germany, France and Belgium import substantial amounts of Dutch natural gas.

In recent years, the effects of decades of natural gas extraction have become more apparent. The soil in certain areas has started to sink and earthquakes have become more frequent and serious. Local protests against natural gas extraction have been on the rise. Residents were complaining about damage to their homes and a depreciation of the value of their property. In response, last summer the Energy Minister Kamp promised to study the situation thoroughly and take appropriate action.

Upon reviewing the results of the studies, the Energy minister observed that there is wide agreement amongst experts that the earthquakes are directly linked to natural gas extraction. Also, the studies show that for the next three to five years, there is reasonable certainty about the magnitude of earthquakes that may be expected (maximum 4.1 on the Richter scale, with a 10 percent error margin). However, with the current data, it is difficult to make predictions about the chance of serious earthquakes in the period beyond five years from now. According to the State Supervision of Mines (SSM) the only way to lower the risks in the short term is to reduce production of natural gas drastically in the most perilous region, Loppersum, and preferably stop operations, in order to conduct detailed geomechanic research.

In view of these findings, the Energy minister announced that companies will scale down their operations up to 80 percent in the most perilous area in the coming three years. This means that the total annual production of the Slochteren field will be reduced to 42.5, 42.5 and 40 bcm respectively in the period from 2014 to 2016. Based on current calculations, state coffers will lose respectively € 700 million, € 600 million, and € 1.0 billion, but the Minister does not expect any consequences in terms of security of natural gas supply for the Netherlands or northwest Europe. In addition, the Dutch government estimates the costs of damage repair and prevention to be around € 850 million, while tens of millions will be invested to revitalize the area, invest in local energy solutions, preserve the region’s cultural heritage and create 3,000 jobs. A total sum of € 1.18 billion is to be invested in the region in the next five years.

Responses to these announcements have been mixed. Provincial government authorities have called the promised investments in the region “satisfying for now.” Controversy and uncertainty about the gravity of future earthquakes remain. A number of local residents believe that not much is changing, and demonstrations therefore continued beyond January 17. Admittedly, scaling down operations by 80 percent in the most perilous area is less drastic than one might think. This is because the reference year used in this calculation (2013) was a year when natural gas production was substantially higher than the original limit set by the government. Therefore, the new limit of producing around 42 bcm brings natural gas production to the level originally set by the government.

Be that as it may, the Dutch state is investing a substantial amount of extra money in a region that has historically faced a decline in population and employment. Other parts of the country that deal with similar trends do not receive this type of support. Consequently, until more data has been collected to support longer-term policy decisions, this compromise seems reasonable. Moreover, it provides the Dutch authorities with an opportunity to think about alternative streams of revenue when Dutch natural gas reserves run out in a decade or two.