News last week that the Dutch Government is to cut production from the Groningen gas field (called the Slochteren gas field by the Dutch) has prompted me to revisit European gas security, a subject I last looked at in 2007.
- European conventional gas production appears to have peaked at 298 billion cubic meters (bcm) per annum in 2004 and has since fallen by 40 bcm/y (Figure 1). In the same time frame, consumption appears to have plateaued and import growth has slowed.
- There are likely 5 reasons for the consumption plateau: 1) the recession and ongoing hardship in the € zone periphery, 2) high natural gas prices linked to LNG heading east, 3) increased use of coal that has become cost competitive, 4) growth of renewable electricity and 5) improving energy efficiency.
- The forecast scenario, that is described in some detail below, sees European conventional gas production falling a further 60 bcm/y by 2020.
- The reduction in Dutch gas production from Groningen is less important to indigenous European gas supplies than the anticipated near term peak and decline of gas production from Norway.
- This post considers only conventional gas. The impact of shale gas in Europe is as yet impossible to predict for geological, social and political reasons.
Figure 1 Historical European gas production from 1970 based on data from the 2013 BP statistical review of world energy. The assumptions behind the future scenario are described in some detail below. Other countries include Germany, Italy, Romania and Poland.
Forecast scenario: The Netherlands
The Groningen gas field in The Netherlands is a world class supergiant with recoverable reserves of 2.8 trillion cubic meters. And so when news breaks that production is to be cut I take note. The reasons given by the Dutch parliament is increased incidence of small earth tremors. The Netherlands have been a small but significant gas exporter within Europe for many years. The move to cut production from 54 bcm/y to 40 bcm/y will effectively end Dutch gas exports and extend the period of Dutch gas independence. This makes perfect sense from a perspective of protecting national interest. The Dutch government have capped production from Groningen for many years and in so doing have prolonged the life of this Tier 1 national asset giving rise to the extended production plateau (Figure 1).
The forecast for The Netherlands includes a staged reduction in production from Groningen from 54 bcm/y in 2013 to 40 bcm/y by 2017. The remaining production in The Netherlands, which is part offshore and part onshore, is declined at 3% per annum.
Forecast scenario: Norway
The Norwegian authorities publish more information on past and future oil and gas production prospects than any other country. Rune Likvern at the Fractional Flow blog has an unrivalled overview of these statistics. I have used Rune’s latest detailed bottom up forecast for Norwegian gas (Figure 2) in my European scenario. This forecast sees Norway on a current production plateau going into a slow gas production decline.
Figure 2 A comprehensive bottom up analysis of Norwegian gas production based on data published by the Norwegian Petroleum Directorate and compiled by Rune Likvern.
Forecast scenario: UK
The UK forecast is very simply based upon a continuation of the average 7.5% per annum decline of the last 12 years. In the last 2 years, decline has accelerated to 14-20% and I therefore see the vast recent investment stemming those declines back to the medium term average. This is not an entirely satisfactory approach, but I do not have the resources right now to do better.
Forecast scenario: Denmark
Denmark is a tiny North Sea gas producer. Production has been declining since 2008 at an average rate of 6.5% per annum and this is forecast to continue going forwards.
Forecast scenario: Others
The others group comprises onshore gas production in Germany, Italy, Poland and Romania. For the last 13 years production in these countries has declined at a rate of 3.5% per annum that is projected to continue into the future. It is in these countries + the UK that coal bed methane and shale gas production offers the greatest potential for gas production growth.
Forecast scenario: Summary and history matching
The forecast scenario presented in Figure 1 is based upon the assumptions detailed for individual countries above. In 2007 I produced the forecast shown in Figure 3. That forecast has proven to be broadly accurate and is not materially different to the new forecast shown in Figure 1. The new forecast includes decline of Norwegian gas production and has about 25 bcm/y less production in 2020 compared with the 2007 version.
Figure 3 The forecast for European gas production that I produced in 2007 saw a future peak of 300 bcm/y. It has transpired that the peak was actually in 2004 and already past at the time this forecast was made. The data mis-match with Figure 1 is most likely down to data revisions.
Consequences for European energy security
Since Europe began to use natural gas back in the 1970s, demand growth has always outstripped supply growth (Figure 4) resulting in ballooning imports (Figure 5). Imports are now equal to indigenous supply. These imports place strains on the national finances of some countries and expose Europeans to energy risk. Gas imports come from Russia, where most pipelines cross Ukraine; from North Africa where Algeria is the main supplier and Libya is currently off line; and from Qatar where LNG ships need to pass through Hormuz and the Suez Canal.
Despite these substantial risks to energy security, European Union and UK energy policies remain firmly focused on CO2 reduction targets.
Figure 4 The historic gas production stack (Figure 1) compared with gas consumption for the whole of Europe including Turkey, excluding the republics of the former Soviet Union.
Figure 5 After more than 40 years of steady growth European gas consumption is showing signs of plateauing. This is in response to multiple factors, namely 1) the recession and ongoing hardship in the € zone periphery, 2) high natural gas prices linked to LNG Heading East, 3) increased use of coal that has become cost competitive 4) growth of renewable electricity and 5) improving energy efficiency.
The loss of 14 bcm/y Dutch gas production adds to Europe’s energy supply / energy security woes. Pending decline of Norwegian gas production will make the energy security situation worse. The EU and the UK need an energy policy based around boosting indigenous supplies of affordable, reliable and dispatchable energy. Shale gas may provide part of the solution but the only long term dependable answer is nuclear power.
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