Speech NOGEPA Industry Luncheon

Toespraak | 10-09-2008

Speech by Ms M.J.A. van der Hoeven, Minister of Economic Affairs of the Netherlands, NOGEPA Industry Luncheon,
10 September 2008, The Hague

Ladies and gentlemen,

It is an absolute pleasure for me to speak to you today. Over the years, NOGEPA has proved a reliable partner for government. And reliable partners we need!
In the field of energy, we are facing what's best described as our greatest challenge yet: how to safeguard affordable energy supplies, while also raising sustainability and maintaining a geo-political balance.

The geo-political balance is fragile by nature. International tensions tend to have an immediate effect on energy relations. Rather straightforwardly, as in Venezuela or Nigeria, or in a more indirect way, as in the current conflict between Russia and Georgia.

In quite a number of energy producing countries, strong ties between State and industry prevail. As a result, investment decisions are to a large extent politically motivated. In such countries, Russia foremost among them, energy policy come to serve political ends primarily. Of course, it goes without saying that all countries are entitled to sovereign decisions on the exploitation of their fossil reserves. It is up to us to find ways of dealing with the potentially rather unsettling effects of this principle and diversify.

Present-day developments underline the importance of safeguarding our security of supply. For a fact, our import dependency will steadily increase in years to come. We must therefore aim at diversifying our supplies as much as possible. To this end, we must use our own reserves to maximal benefit. This is where our 'small field policy' comes in. This is where you come in.

The future of our 'small fields' is intricately linked to our energy policy as a whole. As a small nation, we want to take a leading part in Europe's energy future. In order to do so, we need to strengthen our position as a gas roundabout and help find some kind of solution to the climate problem. In the grand scheme of things, 'small fields' are truly significant. That is why I would like to focus on our 'small field policy' this afternoon.

To emphasise, I do so with a strong sense of urgency. I am fully aware that we are caught up in a race against the clock. By 2030 exploitation of the small fields will more or less have come to an end. That leaves us 20-odd years in which to realign ourselves, starting now. Crucial decisions, however, must be taken sooner rather than later.

We will need to do our utmost to improve access to stranded discoveries and dormant exploration acreage, so-called 'prospects'.

It is primarily up to the industry to look for new and cheaper ways of developing such marginal fields and prospects. Recently, a number of oil companies presented their plans in this regard. Very promising, I must say. I have no doubt that new procedures and new techniques will ultimately lead the way in successfully exploiting even the smallest, most marginal fields. We have every reason to be optimistic.

II

Of course, I have a role to play here too. It is up to government to lay down the statutory and procedural framework for maximal exploitation. As you know, I have always made a strong case for this.

You will also know that I am investigating new financial measures. These should stimulate further exploration. However, financial measures only make sense if they are of substantial significance to raising additional volume and profit. This summer, an external consultancy agency looked into one of the measures proposed at the time and judged it to fall short of our intentions. They just would not have had the desired effect. I am now looking for an alternative solution and this seems promising. However, I will have to consult with my colleague at the Ministry of Finance, and the Cabinet as a whole, before a final decision can be reached.

Meanwhile, it is heartening to see that things are already moving. The fallow field covenant we are working on together, as well as the amendment to the Mining Act that is currently under review in Parliament, I consider to be important steps in the right direction. Both initiatives stimulate licensees to become more active. If necessary, they provide for fallow fields or dormant licence acreage to be made available to new parties.

Also, I have taken a number of practical steps towards a more intensified exploration and exploitation of small fields. Successfully so. We have actively engaged new companies into the process. Since 2005 more than 10 new licensees have entered the market. Also, we have tried to edge licensees into handing back or selling off their licences.

We need to get a better grip on the various kind of licenses that are involved: exploration, exploitation and storage licenses, environmental licences, local licenses such as building licenses and licenses requiring a change to spatial planning decisions.

A number of new rules and regulations will address the problem of some of these bureaucratically fragmented procedures. The revision of the Spatial Planning Act has come into effect as of 1 July this year. Furthermore, we have presented to Parliament regulation on the co-ordination of licensing procedures for energy projects, including some specific mining activities like storage. This so-called national co-ordination procedure will hopefully come into force by the beginning of next year.

Furthermore, my colleague Cramer is preparing what has come to be referred to as 'the WABO'. In the meantime, I am looking into ways of speeding up application procedures. Of course, working procedures within my Ministry also show room for improvement.

As you can see, we are in the midst of a process, our eyes firmly focused on maximal exploitation of the small fields. But that is not the end of the story. Far from it! Once these fields have been depleted, there is an afterlife to be considered. An afterlife that provides yet more opportunities for business.

III

Indeed, depleted or nearly depleted fields will be put to new purpose. They are to provide an excellent opportunity for storage of gas and CO2. I consider such development to constitute a major step in further positioning the Netherlands as North-West Europe's gas roundabout and in achieving a truly green energy transition.

[Gas roundabout/ gas storage]

Of course, the gas roundabout provides a business opportunity of unrivalled proportions, as you can imagine.

There is much to recommend our country as a gas hub. Its geographical position is highly advantageous. We are neatly tucked in between two major gas markets: the United Kingdom and Germany. Geological circumstances are in our favour too: Dutch soil allows for the underground storage of gas in huge quantities. I would like to emphasise that the gas roundabout is not some kind of future dream. We are already operating a major European gas hub, profiting from an extended gas infrastructure network. We are a leading nation in the field of gas research and development, let's not forget!

In order to facilitate trading and safeguard supply, it is essential to have sufficient storage space for gas. One day we will no longer be able to make use of the Groningen-field for balancing purposes. Then also we will need to have back-up reserves in order to deal with fluctuations in this complex system of import, export and seasonal swings in demand. It's as simple as that. We need to reckon with a period of preparation and development. Therefore, investments are urgently required now.

Market parties other than traditional mining companies must be given the opportunity to enter the market for storage facilities. Current licensees must see to it that gas fields that have been prepared for storage are actually being used to that end.

[CO2 storage]

Storage facilities may also be used for CO2. Greenhouse gases present a grave danger to our planet. In order to combat pollution and raise sustainability, CCS techniques are being developed. I am in favour of this, though we must at all times remember that CCS is part of the overall energy transition. It is a temporary measure, allowing us time to develop a more sustainable energy system.

Here I would like to underline one crucial aspect: CCS must be instrumental in bringing about process innovation. It is not to be implemented solely as an 'end of pipe' solution to a huge waste disposal problem. By 'dumping' large amounts of CO2 underground we are merely putting off the more thorough transition that is required. I don't oppose storage as such, but it can only be a temporary solution. As regards CO2, I believe the word order should be: reduce, use and store, in that particular order!

Evidently, carbon capture and storage is still very much in its infant years. Pilot projects are being carried out at the moment, but techniques still require further development and fine-tuning. Evidently, we need to assess risks carefully before giving the go-ahead to large-scale projects. Still, our ambitions remain. Between 2015 and 2020 we would like to be operating two large-scale CO2 storage demo projects. By 2020 we envisage an industry-wide use of large-scale CO2 storage.

The focus will be on the small gas fields. NOGEPA and my Ministry jointly evaluated the technical potential for offshore CO2 storage, which has been calculated to amount to approximately 800 million ton (20 million per year over a period of 40 years). Onshore storage potential will amount to about the same volume. Another evaluation round together with NOGEPA is to follow, assessing access and essential economic preconditions.

[North Sea]

As I said before, the energy transition that we envisage is about security of supply, affordability and sustainability. We will need to devise an energy system that can last for generations. The North Sea is perhaps our greatest asset in this respect. I think we do well to exploit tidal energy and the sea breeze. Nearshore wind turbine farms are operational just off the Dutch coast. They provide us with clean energy, as well as very specific knowledge for next generations. We are looking into ways of 'freezing' wind energy, for instance, in order to store it for use at a later point in time. All in all, I am sure that a bright future lies in store for 'blue energy'.

I know that the development of wind turbines is often perceived as a threat to offshore small-field gas exploration and exploitation. I concede that we are indeed faced by a dilemma here. But probably not as immobilising a dilemma as you may think.

We will need about 1000 square kilometres to realise our plans for wind energy. Offshore areas most amenable to this project coincide with areas that are now being used for gas exploration.
Before CCS and gas storage life was simple. Depleted fields would have allowed for dismantling infrastructure and installing wind turbines. Now we also need to weigh up the importance of gas and CO2-storage.

But there are ways of achieving synergy and realise greater coherence in our activities in the area of small field exploration and wind energy.

For instance: in order for marginal fields to be fully depleted, compression techniques are being applied. Wind turbines supply electricity offshore and in the future this could be used for compression at the very spot where it is needed. In the case of CO2 storage, we could use this locally generated electricity for the heating and compression of CO2.
Also, we could contemplate building compact electricity plants offshore that use the gas that is being exploited from the marginal fields. The infrastructure already in place for wind turbines could be used for transportation of the electricity that is being generated. Plenty of food for thought!

On these issues I fully intend to enter into dialogue with all stakeholders. I am sure we can find a way forward.

IV

Ladies and gentlemen, let me say a few final words. It is obvious that the small field-policy is entering a new phase. After depletion these treasured fields will have an afterlife. Their rebirth may mark the beginning of a new era. An era of sustainable, affordable and available energy. I am sure the oil and gas industry will make a substantial contribution to realising this new period in time. I am also confident that our small gas fields will play a pivotal role in achieving a thorough energy transition. We are on an interesting journey together - I very much look forward to our continued cooperation!

Thank you.