March 2, 2015 / 8:29 AM / 3 years ago

Bells toll for Europe's largest gas field

A view of a gas production plant is seen in 't Zand in Groningen February 24, 2015. REUTERS/Michael Kooren

WESTERWIJTWERD, Netherlands (Reuters) - Dutch church bells that for centuries have tolled to warn of floods across the low-lying countryside are sounding the alarm for a new threat: earthquakes linked to Europe’s largest natural gas field.

“Money can buy a lot of things, but a building like this cannot be replaced,” said Jur Bekooy, a civil engineer with the Groningen Old Churches Association, pointing to cracks in the ceiling and walls of the 13th-century Maria Church in the village of Westerwijtwerd.

Long ignored, voices like Bekooy’s are being heard as elections loom this month and following a damning report from the independent Dutch Safety Board.

It accused the government and the field’s operators, Royal Dutch Shell and Exxon Mobil Corp, of ignoring the threat of earthquakes linked to the massive Groningen gas field for years.

There are now questions about the future exploitation of the field that lies under the northern province of Groningen, with implications that reach well beyond its significance for Dutch state coffers.

Lessons from Groningen, which lies far from any natural fault line, feed into a debate over the threat posed by hydraulic fracturing in the United States, China, Britain and elsewhere.

The world’s 10th largest gas field, Groningen is expected to supply the bulk of the Netherlands’ annual gas needs of 20-30 billion cubic meters (bcm) until the mid-2020s.

The Dutch also have contracts to sell 40-60 bcm annually to buyers in Germany, Britain, Italy, Belgium and France. In all, Groningen and a few smaller Dutch fields supply 15 percent of Europe’s gas consumption, providing one alternative to Russian supply.

When Economic Affairs Minister Henk Kamp recently ordered production at Groningen cut by 16 percent, gas prices jumped across Western Europe.

RAMPED UP

Groningen has been in continuous production since 1963. As far back as 1993 small quakes were definitively linked to its output. But in the late 2000s, they suddenly became more frequent and stronger.

With government finances under pressure from the 2008 financial crisis, production at Groningen had been ramped up from around 30 bcm in 2007 to more than 50 bcm by 2010.

The money generated helped the Dutch cushion the blow of austerity policies championed by the Cabinet.

As Prime Minister Mark Rutte publicly pressed southern European governments to bring their spending under control, Dutch government gas revenues of 15 billion euros by 2013 were about the size of the national deficit.

Without gas, the deficit that year would have doubled from 2.5 percent to 5 percent, violating eurozone budget rules.

But on Aug. 16, 2012, an earthquake with its epicenter under the town of Huizinge marked the beginning of the end for aggressive output from Groningen.

It registered 3.6 on the Richter scale, larger than any predicted by engineers at NAM, the joint venture field operator between Shell and Exxon.

“Until the Huizinge earthquake, we had 1,100 damage claims in 20 years,” said NAM spokesman Sander van Rootselaar. “After the quake we had more than 30,000.”

Earthquakes caused by gas production are usually small, unless they happen near a fault line and can trigger a larger natural quake.

But in Groningen they occur close to the surface, damaging stone and brick buildings never designed to withstand shaking.

Of the 50 churches located above the field, some 40 have been affected, said Bekooy.

BELLS TOLL

When parliament gathered in The Hague to debate gas policy in early February, church bells all across Groningen province were rung in protest.

NAM has so far put aside 1.2 billion euros ($1.34 billion) to compensate damage claims.

More claims are rolling in, including after a 2.6 quake registered in the town of Appingedam last week.

But safety is the bigger issue.

In January 2013, the regulatory agency tasked with overseeing gas production warned the government of a “linear relationship” between the rate of production and the chance of earthquakes at Groningen.

It said it could not rule out quakes measuring 4 or even 5 on the Richter scale, with risk to human life.

The State Supervision of Mines advised production be cut “as quickly and as much as is possible and realistic.”

But that year, with the Dutch economy in recession, the Groningen field produced 53.4 bcm, its most in decades.

“In 2013, when it was very cold in Europe, there was enough gas in Groningen to really run it hard,” said Thomson Reuters Point Carbon analyst Oliver Sanderson.

The earthquakes continued. As the Dutch economy showed signs of recovery, Kamp ordered production temporarily lowered, to 42.5 bcm for 2014 and 39.5 bcm for 2015.

PRICES SURGE

Then, in February, the Safety Board issued its finding that NAM and the government had put profits first and “failed to act with due care for the safety of citizens in Groningen”.

After previewing the conclusions, Kamp on Feb. 9 ordered Groningen production cut to 16.5 bcm for the first half of 2015, implying a cut to 33 bcm for the year. Prices in Northwest Europe surged as much as 20 percent in response.

GasTerra, the Netherlands’ national trading company, was forced to purchase gas on the open market to meet its obligations.

The immediate impact of the Kamp output cut on prices has since faded, helped by mild weather across Europe and LNG deliveries.

“The underlying drivers are still bearish,” analyst Sanderson said, citing new LNG supply coming on line in Qatar and Trinidad, and prospects for more gas from Russia in the fall.

“But Groningen has helped at least put a question mark over how bearish they will be,” he said.

What is clear is the market is no longer counting on a return to higher production levels from the Netherlands. And without the Dutch acting as swing producers in a supply pinch, increased price volatility is likely.

GasTerra has said it will sign no new contracts, nor extend current ones as they expire.

With Dutch provincial elections set for March 18, parties across the political spectrum are demanding production be kept at current levels or reduced.

Kamp has delayed any decision until July 1, saying he awaits more expert advice.

KEEP DRILLING

In the journal Science last month, U.S. scientists said a global increase in gas-related earthquakes appears mostly linked to modern exploitation techniques - not only hydraulic fracturing, but also underground waste-water disposal and injecting carbon dioxide into depleted reservoirs to improve production.

“Although the United States is our focus here, Canada, China, the UK and others confront similar problems,” they wrote.

The threat “can be reduced” with a combination of better seismic tracking and access to industrial data on injections, said Art McGarr of the U.S. Geological Survey, lead author of the Science article.

That would “allow us to detect induced earthquake problems at an early stage, when seismic events are typically very small, so as to avoid larger and potentially more damaging earthquakes later on,” he said.

With bans on fracking in several European countries already in place, the concern about earthquakes will give gas opponents further ammunition. Public attitudes against gas production have quickly hardened in the Netherlands.

On the North Sea island of Terschelling, members of the city council voted unanimously last week against exploitation of a gas field with estimated reserves of 2.5 to 4.5 bcm.

In Groningen, activist Pi van Weert, whose home was damaged by quakes, says he wants the province to declare independence from the Netherlands to halt gas production completely.

“If I‘m honest, there is no hope” for that, he said. “As long as the benefits outweigh the costs, they’re going to keep drilling.”

($1 = 0.8930 euros)

Additional reporting by Nina Chestney in London; editing by Jason Neely

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