Published 16 April 2019
In March 2018, the Dutch government decided to stop natural gas production from the Groningen field as soon as the demand for Groningen gas allows. This implies that gas production will stop in 2030 at the latest and that about 500 BcM of gas will be left in the ground.
Since the first registered induced earthquake in the Groningen field in 1991 the amount of seismic energy released per unit of produced gas has gradually increased. Up until 2012 this did not receive the attention it should have received from the operator (NAM) and from the Dutch state.
In the years following the 2012 Huizinge earthquake (the largest earthquake so far) a number of legal and regulatory measures were taken that made a long-term continuation of gas production increasingly difficult. From late 2015 onwards, production has been set at the minimum level that meets domestic demand and existing export contracts for Groningen gas.
A reversal of the burden of proof for damage to houses, in combination with a large rise in the number of associated damage claims, has greatly increased the non-technical cost of gas production. Many of the more recent claims, especially those on the outer fringes of the field, were not, or were only to a very small extent, related to damage caused by earthquakes but this could usually not be proven. The application of a relatively strict norm for safety related to earthquakes implied that a long-term continuation of significant gas production would require a major house strengthening program. Home owners are currently entitled to compensation for any related reduction in the value of their houses. People have the right to claim compensation for psychological duress.
As a result of the rapid increase in non-technical costs, of which a relatively large share had to be paid by the operator, the Groningen gas field had by 2017 become a major liability to Shell and ExxonMobil (the NAM shareholders). For a long-term continuation of gas production these costs would have been of the order of several tens of billion euros. The measures taken in 2018, apart from leading to a planned cessation of gas production also included a more equitable division of costs between NAM and the Dutch state and implied a large reduction in the house-strengthening program.
These measures were taken against a setting in which the social license to operate for Groningen gas production was gradually lost. Earthquakes played a major role; those with damaged houses that had trouble receiving compensation received widespread sympathy in the Netherlands. Concerns about climate change and a desire among the population in Groningen (who did not financially benefit from gas production) to have a greater say in what was happening in their region also played an important role. Amongst decision makers there was a greater emphasis on environmental and safety concerns at the expense of financial and economic considerations. Electorally, it had become very difficult to defend a long-term continuation of Groningen gas production.
It is the loss of the social license to operate that we see as the core reason for the termination of Groningen gas production.
Republished with kind permission. First published February 2019 by The Hague Centre for Strategic Studies. "Groningen gas: the loss of a social license to operate" https://hcss.nl/report/groningen-gas-loss-social-license-operate
This paper will be part of the OGEL Special Issue on "Social Licence to Operate (SLO) in the Extractive and Energy Sectors". More information here https://www.ogel.org/news.asp?key=571