Following the discovery of the first natural gas field in Slochteren in 1959, houses in the Netherlands were connected to natural gas at a rapid pace. Since then, many Dutch people have been cooking and heating their homes using natural gas. In addition to heating and cooking, natural gas is used to generate electricity, as fuel in the transport sector as well as the industry sector. Natural gas is also used as a raw material in the industry for the production of, for example, fertilizer and hydrogen. Natural gas has become an important source of income for the Dutch government.
Due to the consequences of natural gas for the residents in the vicinity of the Groningen field, the Dutch economy is expected to use less Groningen gas, and extraction of gas from the field will be stopped as soon as possible.
A phase-out of gas production from Groningen means a radical change in the Dutch energy system. If more natural gas needs to be imported from abroad to replace Groningen gas, this will have geopolitical consequences as well as consequences for the security of supply. It will also have major consequences for both the Dutch economy and the government’s balance sheet since money spent on gas from abroad does not end up in the Dutch economy. Nor will it end up with Dutch citizens or companies and therefore will not partly flow back to the government in the form of tax. Additionally, a phase-out of gas production in the Netherlands will require a re-design of the energy infrastructure for the built environment.
In order to switch from gas, alternative sources will have to be used. A switch can be difficult, in particular, for industry and the built environment. In some cases and in the future, green hydrogen can act as a substitute for the use of natural gas as a raw material in the industry. The domestic use of natural gas can in part be replaced by electricity using, for example, heat pumps and induction plates. District heating, geothermal energy, and heat-cold storage can also play a role in the heating of houses.
CO2 is released when natural gas is burned, and therefore contributes to global warming. Natural gas contributes to air pollution through the formation of nitrogen oxides. Moreover, the extraction of natural gas due to associated earthquakes can cause major problems for residents of the extraction areas both in the Netherlands and internationally.
The amount of CO2 emissions from the use of natural gas is more than half the amount of coal produced per heat generated. This means that the use of natural gas for energy purposes affects the climate less compared to coal. It also pollutes the air a lot less than coal. Furthermore, from an international perspective, the use of natural gas in replacing wood to prevent deforestation can be an important step forward in terms of both health and climate issues. This means that the use of natural gas is clearly not good nor bad from an environmental point of view.
Although European natural gas consumption is declining, global natural gas consumption is growing strongly. For example, the International Energy Agency’s (IEA) ‘reference case’ predicts an increase in use from 3.4 trillion cubic meters per year to 5.7 in 2040. This is driven by the availability of shale gas and the increasing supply of LNG from abroad as well as the increasing demand for gas, particularly in China, the Middle East and the United States. The global natural gas market is showing signs of increasing international trade. At the same time, production in North West Europe has been declining for years. Production in the United Kingdom reached its peak shortly after the turn of the century, and production in the Netherlands is now also showing a downward trend. Norwegian production is still rising but according to current insights it will reach its peak before 2030. There is, therefore, a commitment from Europe to further the development of gas infrastructure from Russia.
Historically, natural gas prices have shown a strong link with oil prices, due to the usual oil indexation in long-term contracts. The natural gas market in the United States is an exception to this. Due to large-scale exploitation of local shale gas, natural gas prices are usually lower in this region. For Europe, the link with oil prices can be expected to continue. After a decade of price drops, an increasing trend seems to have started here in 2018.
Due to the increasing import dependence of Europe, geopolitical relationships are changing and supply security risks can increase. The Netherlands will also increasingly have to deal with this now that a phase-out of gas production in the Groningen field is in sight. Against this background, the role of natural gas as an energy carrier in the energy transition will decrease according to the current outlook and possibly contribute to the urgency of switching to alternatives.