War in Ukraine might lead to Groningen gas extraction

By Jan Douwe Krist and Stéphanie Hamel

February 24, 2022. The Russian invasion of Ukraine has disrupted the gas imports from Russia to the EU. Gas prices are already skyrocketing and import alternatives from other countries are scarce. If Europe faces a freezing end of winter, it is not unlikely that gas from Groningen will be extracted again, says Machiel Mulder, professor in Energy Economics.

Around 40% of the EU’s gas imports comes from Russia, according to Eurostat. An important amount of this gas flows through Ukraine and via underwater pipelines such as Nord Stream 1. Nord Stream 2 was completed, but its activation was suspended due to the conflict between Russia and Ukraine, on 22nd February 2022.

Hampering the pipeline that imports gas from Russia to Western Europe – either by sanctions or directly destroying it through armed attacks – could have a major economic impact on all of the EU.

“If we have a few weeks of freezing temperatures in Europe, we’re in trouble,” Machiel Mulder, a professor in Energy Economics at the University of Groningen, tells 9to5. That would lead to an emergency situation, he stresses, as gas is not only used to heat houses, but also to produce electricity, and in the industrial sector.

In such an emergency, he believes, it is possible that Groningen gas will be used, even after the Dutch government promised to shut down the local gas exploitation. This was a promise that came after protests over repeated earthquakes and damages.

“You shouldn’t take that lightly, of course. With the current gas prices, there are billions of euros worth of gas in the ground of Groningen. In such a case, that money should be used to generously compensate the Groningers. Which should have happened earlier anyway.”

The high gas prices and the uncertainty over the economic sanctions on Russian gas already have their effects on energy companies and their customers in The Netherlands. “The costs are already going up now, and we don’t have visibility on how it’s going to increase further,” says Maureen Veurman, spokesperson for Essent, the largest energy company in The Netherlands.

“My whole day has been about checking the news,” she tells 9to5. Essent’s customer service hotline has been overflowing, Veurman adds. “A lot of customers are asking questions about what influence that will have on their bills. For those who already have a long-term contract, the prices remain steady. But for the customers who get a new contract, let’s say in March, that will make a big difference.”

An Essent power plant in The Netherlands

An alternative to Russian gas is shipping in liquefied natural gas (LNG) from countries like the US and Qatar. Over the last decade, Europe, including the Netherlands, invested in storage facilities for this type of gas.

LNG is more expensive than natural gas in its gaseous state because it needs to be transformed. But the import of LNG is not limited by its price, but by the available storage space, explains Mulder.

Another problem is that gas storage is a commercial market. Companies storing gas earn money by buying when prices are low and selling when prices rise. With the high gas prices last summer, few companies were stocking up gas.

Because the market for gas storage is commercial, Russian state-company Gazprom also became active on it. “And they did not keep their storage up as much as we had hoped,” says Mulder. “In hindsight, maybe it was not so clever to let Gazprom be so active on the European and Dutch market.”

Pictures by CreativeNature and WikiCommons.

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