Can Europe Shed its Dutch Gas Crutch?

As foreign companies formerly based in Britain flee to the continental confines of the Netherlands, the Dutch themselves are fleeing from a pillar of their own economy: natural gas.

Over the past two years, the Dutch have signaled, with considerable clarity, their intentions. The current government, backed by seven parties, has called for a 95% emissions cut by 2050 that would require a 49% decrease compared to 1990 levels. It also plans to cut gas production altogether from the Groningen field by 2030. Groningen revolutionized the Dutch economy in the 1960s and 1970s and provided energy security for Europe in the decades following. But gas riches ultimately led to overinvestment in the sector and underinvestment elsewhere, a phenomenon known as the Dutch disease.

Today, earthquakes – and climate change more broadly – now weigh more heavily on the minds of Dutch policymakers and citizens than culling diminishing gas rents. It is ironic, then, that the Netherlands is the first country to proactively walk away from hydrocarbon production due to environmental change. Earthquakes, for instance, that ravage shale-producing areas in Oklahoma and Texas are largely ignored in the United States. By acknowledging them, and by charting an aggressive course to end gas production and transition to sustainable gases, including hydrogen, the Dutch are now at the center of battle to rein in climate change.

Earthquakes shake things up

There are few corollaries to what the Dutch are endeavoring to achieve, but the closest example is Britain with coal. In both cases, domestic supplies of a formerly dominant fossil fuel are simply running out. Production at Groningen has never returned to 1970s levels.

Yearly Production (billion cubic meters), Groningen gas field

Source: E&C Consultants.

The Ministry of Economic Affairs forecasts the field to decline sharply by 2022 anyway, making the 2030 target more viable than it might sound.

But declining production is only part of the story; earthquakes, natural and political, have moved public opinion. Most blamed gas production at Groningen for the August 2012 Huizinge earthquake. Tremors continued intermittently until the January 2018 Zeerjip earthquake, which was hit again in May 2019. The government announced in March 2018 that it would shut down the field in 2030.

During these six years, of course, the Dutch had reoriented their political views, electing a coalition of parties in 2017 that all favored phasing out gas. Even opposition parties favor stronger climate policies. Climate-related inducements, therefore, have propelled a bottom-up policy change. Much like Germany’s Energiewende in the 2000s, propelled by public opposition to nuclear power, the Dutch reorientation is enduring.

Hoping for hydrogen

Historians may well look back on summer 2019 as the birth of the hydrogen era. The International Energy Agency posted its first comprehensive analysis on hydrogen in June, having been prompted by Japan during its presidency of the G20.

Like most energy sources, hydrogen is not new; it is simply not yet commercially viable on a large scale. Its most attractive quality is that it undercuts the needs for batteries to store power and permits wide distribution and use of renewables across national and hydrogen, making it the most attractive path to transition to a cleaner energy economy without wholesale disruption.

The Netherlands aims to be a hydrogen leader. Germany announced similar ambitions in August. France did so last year. Earlier this year, Belgian scientists developed a solar panel that can produce hydrogen gas. These four neighboring countries are, in other words, already forming a nucleus for developing hydrogen. Whether this happens remains to be seen. But hydrogen’s take-up requires leaving Dutch gas behind.

Hubbub about hubs

Concern in recent weeks has focused on what the loss of Dutch gas and Europe’s largest gas-trading hub – the Dutch Title Transfer Facility (TTF) – means for energy-supply security.

For the past three decades, Dutch pain has been, mostly, Russian gain. Besides a slight regeneration in the late 2000s and early 2010s, production at Groningen has tailed off since 2014. This created a bind for the EU, itself eager to transition from coal to gas; Russian gas has filled the Groningen void through 2018. The advent of U.S. LNG and other new supplies, however, is calming continental fears. New Qatari volumes in 2023 could make the gas market even more oversupplied than the oil market.

The Netherlands moving from a gas exporter to an importer will undoubtedly disrupt markets and established distribution networks. Yet gas-trading hubs are no longer necessary or even practical with the advent of LNG and the more serious policy positions taken on the continent towards non-gas resources. TTF, moreover, could become a reliable market device for scaling up hydrogen and other fuels.

Climate change is the new Dutch disease. But the Dutch are famous for looking into the future and leading the way – from joint-stock companies and rational philosophy to natural gas development and happiness. Their transition away from gas now is well timed and is cause for real optimism about a cleaner energy future. Maybe Europe can indeed learn to live without its Dutch gas crutch.

Photo credit: pxhere.