How does a Dutch earthquake impact UK gas prices?

How does a Dutch earthquake impact UK gas prices?

In the UK, as we rely on foreign gas imports to meet demand, talks of reduced supply can increase our prices. After the Netherlands region of Groningen – which supplies gas to the UK – was recently hit by its strongest earthquake in more than five years, there have been fresh calls for a reduction in gas production there.

The Groningen gas field was once Europe’s most productive and a core supply source for countries across Europe. To put this in perspective, gas production threre peaked at around 54bcm during 2013. Just 1bcm of gas is enough to meet total UK demand for three days of a winter cold snap.

Concerns over the possibility of reduced gas supply availability in Europe as a result of a change in Groningen output, caused by the earthquake, pushed up UK gas prices this week. Contracts delivering in winter 2018 and winter 2019 are now at highs not seen since 2015. With the UK struggling to attract LNG tankers, and closure of the Rough storage site, the country has been reliant on foreign imports from Norway, the Netherlands, and Belgium to meet demand this winter.

Decreasing production levels

The Dutch Government has been gradually lowering production at the Groningen site during the last few years amid growing complaints that drilling is contributing to tremors and earthquakes.

Groningen gas

Annual gas production from the site dropped to 19bcm in 2017 from its 2013 peak. The current production cap is 21.6bcm for the gas year from October 2017. The Dutch Government has already agreed to reduce output by a further 10% over the next three years.

Earthquakes

This week’s 3.4 tremor in Groningen on Monday prompted fresh calls for action to protect local homes and businesses. The Dutch Minister of Economic Affairs, Eric Wiebes, called for output at the field to be reduced “by as much as possible” by the end of the current Government’s term in 2021. Dutch gas company NAM called for a “substantial” reduction and proposed halting production at six points in the field. The firm did not specify figures, as this decision must be taken by the Energy Minister.

The country’s gas sector regulator, the Dutch State Supervision of Mines, is to conduct a survey into how best to further reduce gas production.

What this means for your bills

UK wholesale gas prices have increased, particularly for winter periods when demand is highest. The UK is dependent on foreign imports to meet demand, considering our own gas storage problems. Any further reductions in production at Groningen could result in lower supply availability for Europe and the UK. This could push up wholesale gas prices even further, and as a result raise bills for UK businesses and homeowners.

Stay informed with Utilitywise

Our Market Intelligence team keep a close eye on the energy markets and industry updates, keeping our clients informed at a frequency to suit them. Visit our website to find out more about Utilitywise Market Intelligence and our Triad Alert service.

Ross Moffat

Posted by on Friday, the 12. January at 14.50

Ross Moffat has been a part of the Market Intelligence team at Utilitywise since early 2014. His responsibilities include delivering Market Intelligence reports to clients and managing the Utility Insights Twitter account.Ross has a first class Honours degree in Business and Marketing from the University of Stirling.