Four decades of Groningen production and pricing policies

This paper deals with production and pricing policies for the Groningen gas field. It will provide an evaluation of the past and a view to its future i n a liberalized European gas market. The lifelong production potential and high productivity of the Groningen gasfield is unique. The extremely low-co st field is also unique in the sub-optimal manner in which it has been expl oited over the whole of its forty year life to date. Its initial monopolist ic situation in the West European energy economy created an opportunity for its development to be limited to production levels, whereby super-normal p rofits were generated on high value sales at the cost of consumers' welfare . The breach in the monopoly, through competition from Soviet gas, readily ab le to undercut Groningen prices, posed a serious threat both to unit values and marker expansion. Fortunately, the fortuitous 1973/4 international oil supplies and pricing crisis restored Groningen's fortunes. Following the u pward price adjustments for foreign sales, the stage was set for achieving high company profits and massive government revenues. Dutch society in a br oader sense benefited only indirectly through government tax expenditures. Again, energy consumers' welfare gains were ignored. This remains the essence of the situation, pending agreement on the introdu ction of the liberalized market to meet EU directives. Currently the Dutch gas regime and policy objectives are being adjusted to the requirements of operating in a liberalized market. These changes recognize: first, the inva lidity of the government's long-held fears for gas scarcity in such a way, that the earlier steps to restrict both foreign and national sales have bee n abandoned, and second, the need to reinstate Gasunie as an active, rather than a passive, player in the European gas market, in which other particip ants have subverted Gasunie's earlier dominance. The second part of the paper will examine, whether and how these changes ca n be reconciled with the core elements of the Dutch gas policy, i.e. state and private revenues, co-ordination of supply and production, the 'small fi elds policy' and the balancing role of the Groningen field. The liberalizat ion of the European gas market, together with changes in the pattern of sup ply and demand and stated Dutch policy objectives of energy policy may give rise to conflicts between the interests of the Dutch State, the owners of the field and, again, the consumers.