The Bright Past and Challenging Future of Natural Gas

Toespraak | 03-10-2013

Ladies and gentlemen,

We’ve enjoyed public-private gas cooperation in the Netherlands for 50 years now. So let’s use this milestone to look at what we’ve achieved, where we stand and what the future holds. But first, I want to challenge this symposium’s title. Was our past really that bright? And will our future be less so? Before continuing, I would like to congratulate the Royal Dutch Gas Association on its own milestone as it celebrates its 140th anniversary.

Looking back

Looking back, natural gas does indeed seem to have enjoyed a bright past in the Netherlands. When Dutch oil company NAM discovered the Groningen gas field near Slochteren, they weren’t sure what they’d found. Its reserves were estimated at 60 billion cubic metres, at a time when gas was not a popular source of energy in this country. It was actually a disappointing find for NAM because they had been hoping to strike oil. So they decided to keep it a secret. Even from their own US partner Esso.

It wasn’t until a Belgian member of (what would later become) the European Parliament started asking questions, that the news came out. When Andrew Swiger’s predecessor caught wind of this news he hopped on the next flight to the Netherlands. It turned out to be a smart move, not only for his company but also for this country. Because it was our American partner that came up with the idea of connecting Dutch households to the soon-to-be-built gas grid.

But it is thanks to my predecessor, Jan Willem de Pous that exploitation of the Groningen gas field got a head start. De Pous foresaw the importance of gas for industry and society. He was the architect of gas cooperation in the Netherlands, the unique 50-50 public-private partnership that we are celebrating today. Interestingly, everyone agreed that our gas fields should be emptied as quickly as possible. In contrast with the current shale gas strategy in the US, Dutch gas exports were encouraged right from the start. Back then, everyone assumed that nuclear energy would soon become the most popular source of power, rendering gas obsolete. De Pous set it all up with a single ten-page policy document, which he got through parliament after a debate lasting only half a day. [And to think of all the hours and days I’ve spent in parliament discussing energy policy!]. Clearly, much has happened since De Pous and his policy document.

Situation now

Much of it has been good. We now know the field contained some 3,000 billion cubic metres of gas, of which 2,300 have been extracted. Virtually all Dutch households are now connected to the gas grid. For almost fifty years, they have benefited from a secure and relatively cheap supply of energy for heating and cooking. And, contrary to past expectations, for generating electricity. Natural gas marked a sharp turn in our country’s economic history. The Netherlands first became Europe’s largest producer of natural gas. More recently, we became a major trader as well, the gas hub for Northwest Europe, And today, we are also connected to the global gas market, thanks to the LNG Gate terminal in Rotterdam, the TTF Spot gas exchange and underground gas storage facilities like the one in Bergermeer.

In the meantime, natural gas has earned the Dutch state some 235 billion euros in revenues, helping us build our modern welfare state. Last year, state revenues from the Groningen field alone reached 10 billion euros. [Imagine how many more public spending cuts would be needed if we hadn’t earned those revenues.]

So our past as a gas nation is indeed a bright one. But a kind of a shadow hangs over it. By around 1980, gas revenues accounted for five per cent of our GDP. That money was used mainly for paying salaries, grants and allowances, and keeping the budget deficit down. Public-sector spending increase to a dramatic 50 per cent of our GDP.

We were cured of that ‘Dutch disease’.And for fifteen years [between 1995 and 2010], a substantial portion of state gas revenues was set aside for strengthening the economy. As a result, since the nineteen sixties [1960s] some 14 per cent of all gas revenues have been spent on projects meant to strengthen the structure of our economy.
Yet not all of it was spent in the most effective way.

We need to learn from the past. It might be a good idea to spend future gas revenues from new sources on strengthening the economy effectively.
If shale gas production were to go ahead in the Netherlands, this could be a productive way of spending the revenues. Another shadow hangs over our recent past. The strong earthquakes caused by gas extraction have shaken the north of our country in the past year. They have had a tremendous impact on those affected, who worry about their safety, their homes and their well-being.

In this province, people understand the importance of continued gas production for the country as a whole, and for our European neighbours. But at the same time, they don’t want to have to worry about the impact of gas production. They want to feel safe in their homes. These are legitimate demands. That’s why I’ve commissioned eleven studies to investigate every aspect of gas production in Groningen. Studies that cover everything that is going on, both under and above ground.

I can’t anticipate the outcome of these studies. But what I can say is that I will carefully weigh up all the facts and figures when I receive the reports later this year.
Only then will I make recommendations to help the government decide on the future of gas exploitation in Groningen. And I will also say this. Gas exploitation has served the public interest and industry well. Over the past 50 years we have all benefited greatly from gas produced in Groningen. But we should and will take the interests of the people affected by its production to heart.
This is a shared responsibility that the government and its gas partners need to address together. In the same spirit of cooperation that has brought us so much.

We must do three things:

• compensate people for the damage they have suffered;
• take measures to prevent serious damage in future;
• and find new ways to make Groningen an attractive place in which to live and do business, by investing in things like insulation, solar energy and smart grids.

We owe it to the people of Groningen.

What future for Dutch gas production?

So what about the future of gas production in the Netherlands? A few years ago, the International Energy Agency predicted the golden age of gas. Where do we stand now – as gas-fired power plants close down due in part to cheap coal imports; as earthquakes shake people’s confidence in the gas industry; and as shale gas provokes fierce opposition to new gas exploitation?

These are serious challenges. And I can’t say at this stage whether shale gas exploration and exploitation will go ahead in the Netherlands. We have established that in general the risks they involve are manageable. But we will take more time – until the end of next year – to come to a balanced decision at national level on possible locations for shale gas exploration. We will take more time to consult and involve local communities. And we will take more time to research whether fracking techniques can be improved, by using substances that are fully biodegradable, for example.

I don’t want to say that current state-of-the-art techniques aren’t safe. After all, the gas industry has fracked over 200 wells in the Netherlands over the past 50 years. What I want to investigate is whether there are even better techniques available. We are all aware of the concerns about shale gas. Concerns about water pollution, environmental pollution, and landscape pollution. We will take all of these into account.

But let’s not forget the environmental arguments in favour of shale gas. Because it is natural gas, and that is the cleanest fossil fuel around − an ideal back-up for wind and solar power, and an essential component of the sustainable energy mix of the future. And finally, let’s not forget income and jobs. Shale gas reserves are currently estimated at 200 to 500 billion cubic metres. If exploited, they would lead to new activities and jobs in the energy industry, potentially amounting to [nominal] public revenues of between 13 and 33 billion euros.

While this doesn’t compare with the revenues generated via Slochteren, it is not negligible either. Especially if we learned our lesson from history and decided to use gas revenues to truly strengthen our economy. Income and jobs could also be generated by activities indirectly related to shale gas exploration and exploitation. We don’t know the exact composition of the shale gas in our subsoil. But we assume it contains valuable by-products. Like hydrocarbons, which are used for making all kinds of polymers. Thanks to low transport costs, the presence of such raw materials at attractive prices could boost local industry. Like it has done in the United States. And like natural gas production has boosted the local economy here in Groningen. This province is now home to major gas-fired power plants, large energy-consuming companies and a quarter of the country’s chemical industry.

Ladies and gentlemen,

The Netherlands has been a gas nation for the past fifty years, and it will remain so. But we need to take local interests into account. Only then will we be able to weigh up all the arguments for and against gas exploration and exploitation. But let me end on a bright note. At the age of 50, Dutch gas cooperation seems far away from retirement. The recent decision by pension administrator PGGM to invest in Northern Offshore Gas Transport  is a sign of great confidence in the future of the Dutch gas industry.
A future that may indeed be as bright as its past.

Thank you.