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With gas production from the giant onshore Groningen field set to fall to less than 4 Bcm/year in the early 2020s and to be shut in permanently by 2030 – or even earlier – the Netherlands will become increasingly dependent on imports.

For a country used to being a net exporter of gas, the shift will be seismic.

And while the country has enough infrastructure to import gas to meet its future demand, that is not enough to secure gas supplies in the future, Annie Krist, CEO of Dutch gas trader GasTerra, said in an interview late last year.

Instead, stakeholders should think “seriously” about locking in future gas imports, Krist said.

“You need more than pipelines and other facilities to secure supplies. After all, the gas has to be bought and sold as well,” she said.

“Until now, being a net exporter of gas, the country didn’t have to worry about that. Now policy makers and other stakeholders should start thinking how to tackle this issue.”

Supply security

Earlier this year, GasTerra commissioned consultancy IHS Markit to research what policies the Netherlands should follow to ensure gas supply security post-Groningen.

IHS concluded that relying fully on spot gas and LNG purchases to ensure supply security was not advisable.

This, it said, is because it would require full confidence in the reliability and liquidity of the TTF hub and also because Russia’s Gazprom is likely to shift its commercial strategy away from long-term contracts to more spot sales in the Netherlands.

“It would make sense for long-term contracts to maintain some role in Dutch gas supply for the foreseeable future,” IHS said, also pointing to the fact that Europe is in competition over LNG supplies with buyers from all over the world, particularly Asia.

Krist said the advice from IHS should be “taken seriously.”

“According to the report, if nothing changes the Netherlands will cover less than 1% of imports with bilateral long-term import contracts by the mid-2020s,” she said.

“In contrast, it is expected that other countries then will still be relying on a mix of hub trading and long-term import contracts. It seems sensible to us that we find out why.”

At present, however, GasTerra has no “concrete plans” to enter into additional import contracts, Krist said, adding that there is enough time for the Netherlands to adjust to its new reality.

“At the moment we still produce enough gas to meet demand. Our point is that the situation will change in the future. The Netherlands will become a ‘normal’ gas consuming country, just like our neighbors,” she said.

“These countries are used to importing almost all the gas they need. So we thought it made sense to inquire how and where these countries buy their gas. Preferably on the hub or primarily by means of long-term bilateral import contracts?”

Krist said that long-term contracts could be of any length, though she dismissed the likelihood of any very long-term contracts.

“Such decisions always depend on market realities. We don’t expect that the market will return to the kind of (very) long term contracts that existed before gas trade was liberalized. Today, pricing is linked to hub prices, also in bilateral contracts,” she said.

“Green” gas

Krist also said that while there are other measures the Netherlands could take — such as cutting gas demand – the country will remain gas dependent.

“The government has already announced that it wants to lower gas demand by replacing gas with alternative sustainable energy carriers — mainly green electricity, hydrogen, biogas, etc – where that is feasible,” Krist said.

“But we should be realistic. The country still is very dependent on natural gas. No less than 40%. That means that it will probably take decades to phase out gas entirely.”

Go deeper: Dutch offshore wind plans to offset Groningen gas cuts, coal exit by 2030

Krist said green gases also had an ever more important role to play in the future.

“Presently, our country produces approximately 300 million cu m of biogas annually. That is in energy terms roughly the same amount as what all solar panels in the country deliver,” she said.

“We think that potentially 3 Bcm of biogas could be produced in 2030. Also the prospects of hydrogen as fuel and as an alternative power storage solution look pretty good.”

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Source: Platts - The Barrel Blog News Feed