The end of the Dutch gas era as the Groningen field closes

By Rhod Mackenzie
On 1st October, the Netherlands will finally close its primary gas field located near the northern city of Groningen. This gas field, was the largest source of hydrocarbons in continental Western Europe. It helped in the swift development of post-war Netherlands, but at the same time caused the infamous “Dutch disease” in the economy. This was the significant field for Holland and Europe, lets look at the reasons for its closure, and the impact of its closure on the European gas market.

A historic discovery.
In 1959, the Dutch oil firm NAM, renowned for its discovery of the Schonnebeek oil field, uncovered extensive gas reserves in the northeast of the country close to city of Groningen located in the province of the same name. Just four years later, the field began producing gas. Ongoing geological surveys regularly updated the estimates of the recoverable reserves, which stood at 60 billion cubic metres during the initial exploration in 1959. Initially, this was a positive sign, able to fulfil the entire country’s requirements for a number of years. However, the amount predicted escalated to 470 billion cubic metres in 1962, then 2 trillion cubic metres in 1967, and ultimately reached the astronomical figure of 2.8 trillion cubic metres during the development process. Groningen’s resources turned out to be more than enough to support Europe’s high level of gas demand for over six years.

Groningen’s production really flourished in the 1960s and 1970s. In its initial years, production was restricted to 1-2 billion cubic metres annually, it then surpassed 20 billion cubic metres by the end of the 1960s and escalated to 60 billion cubic metres in 1972. At its pinnacle during the latter half of the 1970s, its production nearly reached 90 billion cubic metres each year.
This proved more than ample to meet the demands of the Dutch for natural gas, and overnight Holland became Europe’s leading hydrocarbon exporter. Specifically, during the 1970s around 50-60 billion cubic metres of gas were exported, corresponding to roughly 20% of Western Europe’s total requirements.
The significant increase of export earnings into a small country resulted in a complete economic phenomenon and was subsequently dubbed “Dutch disease” in all academic publications. The upsurge in guilder exchange rate resulted in a negative impact on preformance of other industries in the nation, leading to a loss of competitiveness. However, during the 1970s and 1980s, there was significant economic growth in the kingdom, and the existence of its oil and gas reserves shielded the Netherlands from the fuel crisis that hit most of the Western world after the OPEC crisis in 1973. At the end of the decade, production in Groningen was somewhat reduced as the government requested a focus on smaller deposits.
Over time, Groningen evolved into a market-balancing act. If demand outgrew small reserves, its production increased, and at other times they decreased. Nonetheless, the 21st century saw a rise in production because of the gas industry’s rapid growth throughout Europe from 2000 to 2013. Additionally, during this time, the small deposits were depleted. By 2013, the field had been depleted by almost three-quarters, but regardless, it maintained its position as the second largest reserve in Europe.
Seismic changes
In 2012, an earthquake of 3.6 magnitude was recorded in the town of Huizinga, situated in the province of Groningen. This was a rare occurrence on what is a flat plain that is not prone to seismic activity. The event triggered an in-depth investigation into the link between oil and gas production and earthquakes, which had been happening frequently, albeit not as strong as the Huizinga earthquake, which was the most powerful on record. As a consequence of environmental pressure and protests from some locals, the production in Groningen was cut in half – down to 25 billion cubic metres. In 2014, production was halved but further shocks in 2016 caused another reduction in production, down to 20 billion cubic metres per annum. Then, in 2018, after yet another earthquake, production was further reduced down to 12 billion cubic metres.
The Dutch government’s recent proposal outlined a gradual decrease in production to 7.5 billion cubic metres in 2022, followed by a complete cessation by 2030. This initiative complements the numerous eco-friendly strategies of the Dutch government’s aim to substitute fossil fuels for renewable energy sources.
However, in 2023, the decision to speed up its closure was made after a parliamentary inquiry revealed that the government had underestimated the impact of human-induced seismic activity on the province. The inquiry highlighted extensive damage to the environment, including the destruction of thousands of homes. The Prime Minister Mark Rutte acknowledged the “painful findings” of the investigation and enforced an order for the stoppage of work before October 1, 2023.

Nevertheless, a complete closure is not anticipated. 12 drilling rigs will remain in a state of constant readiness to generate revenue in case of a gas shortage on the domestic European market during the upcoming winter and spring. The equipment will be dismantled completely by October 2024. The future field plans will rely significantly on this winter’s outcomes. If an actual shortage arises on the market, then plans for the field may be altered accordingly.
Although there is resistance, it is probable that Groningen’s story will come to a close. The field has contributed almost €400 billion in revenue to the Dutch economy over 60 years, becoming a foundation of the “welfare state” in the Netherlands. Prior to World War II, Holland was considered a moderately developed country in Western Europe. However, it was during the 1960s and 1970s, with the discovery of oil and gas fields, that its GDP per capita led the region. Although their significance for the country’s economy has diminished, the reduction of such a substantial revenue stream in recent times has had a noteworthy effect on the national budget.
It is noteworthy that Dutch politicians are highly receptive to environmental NGO criticism. The ban on fertilisers and the associated threat of liquidating thousands of farms sparked a genuine “farmers revolt”, culminating in the formation of a new popular political party.
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The end of the Dutch gas era as the Groningen field closes

On 1st October, the Netherlands will finally close its primary gas field located near the northern city of Groningen. This gas field, was the largest source…