Shale gas in the Netherlands: Key industry updates II

07 May 2014

Michelle de Rijke, Mariska van de Sanden

On 30 April 2014 the Dutch Minister of Economic Affairs published an overview of all steps to be taken before the Minister takes a final decision with regard to whether or not to allow shale gas exploration in the Netherlands. According to this overview a decision regarding exploratory drillings will not be taken before the summer of 2015. Moreover, the overview includes the announcement that the Minister decided to not withdraw the permits already granted to Cuadrilla.  

History

The Netherlands has been a large producer and consumer of natural gas since the development of the Groningen Gas field in the 1960s, the largest natural gas field in Western Europe. A key driver behind shale gas development therefore did not apply in the Netherlands. To date there has not been any extraction of shale gas in the Netherlands. However, as current forecasts show that gas revenues are expected to decline significantly as the gas fields peter out in the next decades, and the Dutch Minister of Economic Affairs recently decided to cut the output from the Groningen Gas Field due to several heavy earthquakes lately, shale gas might have greater relevance in the future.

Currently both the U.S. Energy Information Agency and TNO have reported resource estimates for shale gas in the Netherlands. The EIA estimates that the Netherlands currently holds 735 bcm of shale gas resources; TNO estimated a lower range of 200 – 500 bcm. It can, however, be questioned to what extent shale gas production is economically viable in the Netherlands. The initial estimate is that the Dutch shales lie much deeper than those in the U.S.A., namely approximately at three to four kilometers below the surface. Besides, shale gas production is not always possible in the Netherlands as it is densely populated, and due to the presence of natural areas and a lot of infrastructure. On 1 March 2014, Triple E Consulting published a report in which it estimates that the total investments per well in the Netherlands would amount on average to 14 -15 million euros. 

Exploration and production of shale gas has given rise to public resistance in the Netherlands. Although Dutch political sentiment has historically been largely pro-shale gas, the first setback came in 2011, when the Dutch District Court of Den Bosch ruled that the local authority Boxtel, who had granted a company permission to conduct test drilling, did so unlawfully. That has sounded a cautious note for the exploration and production of shale gas. Since then, many fear that due to fracking the drinking water will be contaminated, earthquakes will be triggered and methane will be released. This does not only include Dutch environmental interest groups and civilians but also enterprises such as brewing groups and water companies. The Netherlands has very clean drinking water and the supply of this is of primarily importance to these companies.

Report - August 2013

In August 2013, the Dutch Ministry of Economic Affairs published a report, conducted on their behalf, about the risks and effects of the extraction of shale gas. The conclusions are positive: little danger of contamination of the water, careful storage of chemical waste avoids pollution, stronger regulations prevent methane escaping via the water system, and earthquakes are minimal. Hence, the report points out that there are indeed environmental risks present, but that these risks could be manageable.

NCEA Advice - September 2013

The Minister of Economic Affairs requested the advice of the Netherlands Commission for Environmental Assessment (NCEA) on the scope and quality of the report. This advice was published on 19 September 2013 and recommends a mandatory (local) environmental impact assessment for each shale gas project. Moreover, the NCEA advises, among other recommendations, that fracking should be avoided in certain areas, such as the ones where faults are present.

Strategic Environmental Assessment - November 2013

With the report and advice in mind, the Minister decided on 13 November 2013 to first have a strategic environmental assessment (structure vision) carried out, in which a long term spatial planning strategy is developed. This structure vision will form an integral part of the structure vision regarding subsoil, which is also being developed at the moment. This in order to be able to make a comprehensive assessment of what measures should be taken. The structure vision subsoil is expected to be finished in the beginning of 2015.

An environmental impact assessment (so-called planMER) is prepared by Arcadis and will form the basis of the structure vision. This planMER aims at gaining insight into the most suitable locations in the Netherlands for extraction of shale gas. The planMER is expected to be published in the end of 2014. In the meantime, the Minister will consider and discuss possibilities to reduce the identified risks, i.e. by adjusting the Mining Act (making fracking explicitly identifiable in the Act and introduce structure visions as an evaluation framework), the development and/or use of new technologies and implementing compensatory measures for the region where shale gas extraction might take place in the future.

The first step will, however, consist of the preparation of a memorandum regarding the scope and level of detail setting out the subjects that will be investigated and the areas which will be covered. The Minister expects this memorandum to be ready in July 2014. The Minister announced that he will give each party the opportunity to respond to the memorandum and he will also seek advice from the NCEA.

Overview of steps – April 2014

On 30 April 2014, the Dutch Minister of Economic Affairs published an overview of all steps that need to be taken before the Minister takes a final decision with regard to whether or not to allow shale gas exploration in the Netherlands, including the following timetable:

 

Source: Dutch Ministry of Economic Affairs. Informal translation: (1) notitie reikwijdte en detailniveau = memorandum scope and level of detail (2) uitvoeren planMER = carry out environmental impact assessment (3) opstellen ontwerp structuurvisie = preparation draft structure vision (4) vaststellen structuurvisie = conclude structure vision (5) juridische analyse = legal analysis (6) voorbereiding wetgeving = preparation legislation (7) opdracht onderzoek innovatieve technieken = assignment research innovative techniques (8) onderzoek innovatieve technieken = research innovative techniques (9) opdracht inventarisatie tegemoetkomingsmodel = assignment research compensation measures (10) uitvoeren analyse = perform analysis (11) uitwerking tegemoetkomingsmodel = development compensation measures.

Present

At present all drilling is on hold and no new licenses for the extraction of shale gas are issued until a formal decision has been made. Therefore, no extraction of shale gas is expected in the Netherlands in the near future. On 30 April 2014, the Minister announced that it decided to not withdraw the permit granted to Cuadrilla Hardenberg B.V. ("Cuadrilla") for exploration of shale gas. The municipality Noordoostpolder requested the Minister to withdraw the permit as Cuadrilla had not yet started an exploratory drilling as required by the Dutch Mining Act (within three years after issuance of the permit). The Minister held that a withdrawal of the permit would be inaccurate as Cuadrilla could not start the drilling due to the policy of the Minister.

As soon as the structure vision is compiled, the Minister will reconsider – based on the outcome of the structure vision – whether or not to withdraw the granted permit. This also includes the permits granted to Hexagon Energy B.V.).

It is worth noting that the Minister has issued permits for exploratory drilling of geothermal resources, even though the producers of geothermal energy also use the controversial fracking method. However, the fracking method used for geothermal energy is said to be less intrusive and is applied on a smaller scale.

Future steps

If shale gas production is approved, there will be other implications. Following the advice of the NCEA, the Minister decided that a local environmental impact assessment is needed for each shale gas project. If the results are negative, that is, the extraction of shale gas in that specific area cannot be conducted in a safe and responsible manner, the application will be rejected. Moreover, the municipality in question will have to issue a declaration of cooperation, formally agreeing to the extraction of shale gas. So far, 33 of 400 local authorities declared that they are opposed to shale gas extraction. If one of these municipalities refuses to issue the declaration, it is, however, possible for the Dutch government to overrule the municipality through the so-called Rijkscoördinatieregeling, which gives the state the power to push through vital infrastructural projects.

European level

On 22 January 2014, the European Commission (Commission) published a Recommendation on minimum principles for the exploration and production of hydrocarbons using high volume hydraulic fracturing (Recommendation) aiming to ensure that proper environmental and climate safeguards are in place for fracking.

The Recommendation invites Member States to follow minimum principles when applying or adapting their legislation applicable to hydrocarbons involving high volume hydraulic fracturing. In summary, the main suggestions made in the Recommendation are to ensure that:

  • A Strategic Environmental Assessment and Environmental Impact Assessment are undertaken;
  • A site specific risk characterization and assessment is carried out (suitability of site);
  • A baseline study of the environmental status (e.g. of water, air, land use) is conducted;
  • The public is informed of the composition of the fluid used for hydraulic fracturing on a well by well basis as well as on waste water compensation, baseline data and monitoring results;
  • The well is properly insulated from the surrounding geological formations;
  • Venting is limited to most exceptional operational safety cases, flaring is minimized, and gas is captured for its subsequent use;
  • Operators use the best available techniques.

For the purpose of the Recommendation high volume hydraulic fracturing means injecting 1000 cubic metres per fracturing stage or 10000 cubic metres during the entire fracturing process. Furthermore, Member States should apply the provisions on environmental liability to all activities taking place at an installation site, including those that currently do not fall under the scope of Directive 2004/35/EC. In addition, operators need to provide a financial guarantee covering the permit provisions and potential liabilities for environmental damage.

The Commission initially sought to introduce a directive to regulate fracking for shale gas. However, a number of Member States are currently in the process of granting of have granted concessions and/or exploration licenses. The Commission was, therefor, requested to act urgently. According to the Commission it decided to favor a Recommendation over a Directive as it has the advantage of being applied faster, while providing a reference for action at national level. Although the Recommendation is thus soft law and in principle not binding, a Member State that deviates from it will probably have to motivate that decision and justify it to not only the Commission, but also to its national government and citizens.

The Commission also published a Communication on the exploration and production of hydrocarbons using hydraulic fracturing that outlines opportunities and challenges stemming from shale gas extraction in Europe. Moreover, it published an Impact Assessment that examines the socio-economic and environmental impacts of a range of policy options.

The Commission will closely monitor the application of the Recommendation, comparing the situation in different Member States on a publicly available scoreboard. Member States are invited to inform the Commission of measures they have taken under the Recommendation by 22 July 2014. The response of the Dutch Ministry is currently being developed and expected within a couple of weeks. By 22 July 2015 the Commission will review the implementation of the Recommendation and will consider making the Recommendation legally binding.

Finally, the Commission is reviewing the existing reference document on extractive waste under the Mining Waste Directive so as to cover notably the management of waste from hydrocarbon exploration and production involving high volume hydraulic fracturing. Moreover, the Commission will establish a European Science and Technology Network on Unconventional Hydrocarbon Extraction.

See our earlier update for more information: http://www.twobirds.com/en/news/articles/2013/dutch/shale-gas-in-the-netherlands.

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