The Netherlands has decided to permanently shut down Europe's largest gas field, the Groningen field, by October 1, 2022. This decision accelerates the closure timeline, and may limit the country's supply buffer, as it heads into next winter. Previously, the Netherlands had planned to close the field at the latest by October of 2023, but political pressure led to an earlier shutdown. Since 1963, the Groningen field has been a key source of gas for Europe, but it has also caused hundreds of earthquakes in the region since the 1980s, resulting in damage to thousands of homes, which caused local opposition.
The Dutch government faced criticism on the issue, and Prime Minister Mark Rutte narrowly survived a no-confidence vote before the decision was made. This recent shutdown removes one option to boost gas flows if Europe's energy crisis worsens next winter. Although the Groningen fields contribute a small amount to Europe's overall gas output, it has been a vital supply buffer.
The shutdown has caused prices to spike, with Dutch front-month gas futures, the benchmark for Europe, rising more than 30% higher. Norwegian gas outages and hot weather further increased concerns about supply, making the decision for early closure even more impactful.
The Dutch government pledged earlier this year to pay €22 billion over a 30-year period to compensate Groningen residents. According to the Groningen Mining Damage Institute, at least 127,000 homes with around 327,000 homes in the region have reported damage due to earthquakes since the 1980s. More than 3,300 buildings have been demolished since 2012 because of the damage caused by earthquakes, thus demonstrating the need for the early closure of the Groningen field.
The Dutch government is also considering filling the gas wells with concrete next year, with a maximum of 2.8 billion cubic meters of gas to be extracted from the Groningen field until October, as it currently runs on a pilot light. The decision for closure isn't entirely irrevocable, as the wells can be reopened if there is another energy crisis or an exceptionally cold winter. The government will have a two-week window to change its decision, depending on weather forecasts.