Groningen closure debate reignites as Shell brings fresh arbitration

Debate over the future of the Groningen gas field has reignited again amid geopolitical tensions between Europe and the U.S. and as oil major Shell brings a fresh arbitration case against the Dutch government over the closure of the field.

Earlier this month, Shell filed a new arbitration case against the Netherlands at the International Centre for Settlement of Investment Disputes (ICSID) under Energy Charter Treaty (ECT) rules.

The ECT is a controversial international agreement which was originally designed to protect energy-related investments by foreign entities but has come under scrutiny in recent years for clashing with net zero goals, amid a raft of legal cases being brought by energy companies over fossil fuels investments.

On the back of that, a number of countries — including the Netherlands — have decided to withdraw from the Treaty.

One of the key elements of the dispute is that “costs are being charged to NAM that appear to have nothing to do with gas production and go far beyond NAM’s liability,” a spokesperson for Shell told Gas Outlook. NAM is the joint venture between Shell and ExxonMobil — operated by Shell — which holds the concession for extracting gas at Groningen.

“Shell has been raising concerns for years that many of its legal and contractual rights related to the wind-down of the Groningen gas field are being disregarded by the Dutch state,” the spokesperson continued.

“Given the negative impact of this on our investments in the Netherlands, Shell has now decided to protect these under the international Energy Charter Treaty.” 

Shell “may seek provisional measures, for example to suspend payment obligations linked to earthquake damage,” Bart-Jaap Verbeek, a senior researcher at the Centre for Research on Multinational Corporations (SOMO), a Dutch-based NGO, told Gas Outlook.

“A major battleground will be admissibility, as intra-EU arbitration under the Energy Charter Treaty is incompatible with EU law.”

“The Dutch State is also likely to pursue anti-suit injunctions before UK courts, as it did in the Exxon case.”

“This dispute will almost certainly take years and adds to more than twenty ongoing domestic, national and international proceedings related to Groningen,” he added.

These include a similar case filed by ExxonMobil at the ICSID under ECT rules; two cases filed by NAM before the Netherlands Arbitration Institute (NAI) over damage repair costs and a third NAI case, brought jointly by Shell and ExxonMobil in which the companies seek compensation for alleged lost gas profits due to the accelerated closure of the field.

Energy supply concerns

The most recent Shell case comes as geopolitical tensions with the U.S. have rekindled a political debate in the Netherlands over the closure of Groningen.

The Dutch state decided to permanently close down the field due because of earthquakes linked to extraction activity, which were damaging local buildings.

However, mounting tensions between Europe and the U.S., and the potential threat to LNG supplies, are leading to calls to maintain Groningen open for emergency supplies, Dutch newspaper De Telegraaf reported.

“The fact that people (and) experts are saying this outloud now is a key change from the last couple of years where the topic was considered taboo by media, experts and politicians,” Margriet Kuijper, a Dutch-based independent consultant and former manager at NAM and Shell overseeing the earthquake team, told Gas Outlook.

“There now is more attention for the option to leave the field (or some) wells open as emergency supply.”

“This could be an interesting compromise as that would mean there would be no additional (or) new production and therefore no additional earthquakes, but it would provide significant strategic reserves and the capability to respond in case of sabotage acts, thereby making these acts less effective and therefore of interest/value to the perpetrator,” she said.

“In the past most arguments were about whether we should continue production at low rates (however) that is politically probably not an option in the near future.”

While “one party (within the Dutch Parliament) is openly in favour of reopening the entire field, and to investigate options to stabilise the pressure in the field by injecting nitrogen…There’s absolutely no further support for this,” Verbeek said.

“Some indeed suggest to keep some wells open for emergency, but they also recognise that it would not solve the problem of the Netherlands’ reliance on LNG imports.”

“It would merely be pain relief to reduce the gas price by around 10% — at most perhaps 20% — in the event of an extreme crisis.”

While Europe as a whole might benefit from that, the costs “would fall on the Netherlands” while creating “a major political headache,” he argued.

“There are still many so-called smaller gas fields in the Netherlands that are currently in operation, both onshore and offshore, and the government considers these strategic in light of geopolitical turmoil,” he added.

(Writing by Beatrice Bedeschi; editing by Sophie Davies)