Biggest gas field in Europe closure raises winter prices and Romania’s importance for the energy market

The news that the Dutch government is planning to close the largest natural gas field in Europe on October 1st shocked the markets last week, with natural gas futures jumping over 30% on concerns related to gas supply for the coming winter.

Macro commentary by eToro analyst for Romania, Bogdan Maioreanu

As European natural gas storage tanks are still unusually full for this time of the year,  prices remain low for deliveries in the next few months. The closure of the Groningen field puts Romania in the spotlight. With its recent oil and gas field discoveries on and off shore, Romania, already the second largest producer in the European Union after the Netherlands, is becoming a key supplier in the continent’s energy architecture.

Last winter, Europe managed to store enough gas and with a warmer winter prices have dropped radically from their highs following the start of the Russian invasion in Ukraine, reaching lows of 50 euro per MW. The same strategy is likely to be adopted again to ensure energy supplies are stable and predictable.

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Romanian natural gas storage capacities are 63.5 full according to the latest data from GIE (Gas Infrastructure Europe). The EU average is 73.66% with Spain having gas storage almost 97% full and Sweden being over 95%. In our region, Hungary is at 61% and Poland at 62%, Czechia at 79%, Slovakia at 78% and Bulgaria at 86%.

The closure of the Groningen gas field resource puts in perspective the importance of additional natural gas production capabilities. Norway managed to become the largest supplier in Europe and is ramping up production. The Netherlands is the largest direct natural gas producer in the EU followed by Romania and Germany.

While the Dutch production is diminishing, IEA estimates that Romanian natural gas production is set to increase from the Midia Gas Development project and from the Doina and Ana offshore fields. With an estimated 10 billion cubic metres of gas reserves, Midia will be providing 1 bcm a year during 2023-2026 – offsetting the declines from more mature fields.

The reason for the Groningen closure has to do with its troubled history. The gas pocket was discovered in 1956, and was estimated to have 2.800 billion cubic metres. A report from Eindhoven University of Technology estimated that Groningen is the Saudi Arabia of Europe when it comes to gas, with the value of at least 1000 billion euros worth of gas in the ground. Initially the field was forecasted to be exploited until 2050. But since the 1980s a series of earthquakes, some over 3.5 Richer, destabilised the area and damaged properties in the region. It is estimated that at least 127.000 out of the total 327.000 homes in the area reported some damage. The Dutch government pledged over 22 Billion euro over a 30 year period to compensate residents.

As a result of this particular situation, production was limited to 2.8 billion cubic metres per year and Groningen contributed very little to the overall European supply. In addition, the natural gas from there is low calorific because it has 14% non combustible nitrogen. While this diminishes even more its importance, Groningen was seen as a back-up solution in case Europe will need more natural gas over winter. Media sources are saying that the decision is not final, but there is strong political pressure on the government to close the field due to earthquakes and its fate is sealed.