The discovery in 1959 of natural gas in a well drilled by the Nederlandse Aardolie Maatschappij (NAM) near Hoogezand, Gemeente Slochteren, a town in the Province of Groningen, led to the development and establishment of major natural gas production in the Netherlands. This important industrial development could not have started and the necessary investments would not have been made by the industry, if not in accordance with the then applicable Napoleonic Mining Law of 1810 a concession had been applied for and granted allowing to exploit this discovery. From this point of view, admittedly a lawyer’s view, the award of the concession, which was named Groningen, should be considered to be the actual starting point for the aforesaid development.

On 1 July 1961 NAM submitted its application for a concession based on its Slochteren discovery and with this submission the negotiations started between the Netherlands government on the one side and NAM and its two shareholders, viz. Shell and Exxon, on the other side, on the terms and conditions to be incorporated in the applied for concession. On the government’s side attention was focused on two aspects: how to integrate the natural gas discovered into the economy of the country and how to involve the State in the production and disposal thereof. From the outset the government intended, that the State’s interests should be represented by the Staatsmijnen in Limburg (State Mines) in order to give this coal mining enterprise a future outside and independent from its ailing coal mining business in the Province of Limburg. To this end the government arranged for State Mines to enter into a maatschap (partnership) with NAM. In this partnership State Mines would get a 40% participating interest, leaving 60% for NAM. The concession would be granted to NAM, but the latter would be obliged to produce the natural gas reserves contained within the concession for the account and responsibility of the partnership. The partnership would be managed by State Mines with a 50% voting right and by NAM’s two shareholders each with a 25% voting right.

In the deed of concession, which was granted on 30 May 1963, it is stipulated, that any natural gas not needed by the concessionaire for its own operations should be sold to a corporation to be designated by the Minister and the articles of association of which would require the latter’s approval. This corporation, named the NV Nederlandse Gasunie (the Gasunie), was established on 6 April 1963. Its shareholders were (and still are) State Mines (now Energie Beheer Nederland (EBN)) with a 40% shareholding interest, the two shareholders of NAM, each with a 25% interest, and the State itself with a 10% interest. The Gasunie is allowed to realise from its business of buying, transporting and selling natural gas an after tax profit of NGL 80 million per year. Any surplus revenues are transferred to NAM (the transfer sum) in payment of the gas delivered by NAM.

The concession area comprises about 2,970 square km, covering the territory of the Province of Groningen and the territorial waters adjacent to the Province. The concession area includes part of the Waddenzee, an area in respect of which special environmental/zoning rules and regulations are in force. As a matter of fact any exploitation of the gas reserves situated in that area is ruled out, at least for the foreseeable future.

The concession area also includes an area described as the Common Area in the Supplementary Eems I Dollard Agreement of 14 May 1962. Under the terms of this Agreement natural gas produced from the gas reserves situated in the Common Area had to be shared with German concessionaires. NAM was appointed the operator for implementing the provisions of the Agreement.

A certain varying amount of subsidence is experienced throughout the concession area. In this matter the partnership agreed to compensate, up to a certain financial limit, third parties which incurred costs or suffered damage in connection with said subsidence.

The province of Groningen is flat and level, lying at an elevation close to sea level. The area is intensely cultivated and water table levels are a matter of concern. When the size of the Groningen gasfield was recognized in the sixties, it was realized, that substantial subsidence might occur at the surface affecting a large area.

Intensive studies were performed over time to predict future subsidence. These studies are supported by theoretical and experimental research in Shell since the 1950’s concerning reservoir compaction and related surface subsidence. To monitor reservoir compaction and surface subsidence on a regular basis, an extensive monitoring program was set up by NAM. The program comprises leveling surveys, GPS measurements, measurements of shallow formation compaction and in-situ reservoir compaction.

In Groningen weak earthquakes have occurred since 1991 at irregular intervals. A multidisciplinary study from 1991–1993 on the relationship between gas production and earthquakes in the northern part of the Netherlands, combined with further studies concluded, that under certain circumstances these earthquakes may result from gas production. Monitoring is carried out through a seismic observation network with borehole sensors and locally installed accelerometers.

Because of the expected impact of subsidence induced by gas production on surface water management, an Agreement was concluded between the Province of Groningen and NAM.

In line with the 1983 Agreement the ‘Commissie Bodemdaling’ was founded, in which both NAM and the Province of Groningen are represented. On the basis of NAM predictions and actual measurements this Committee determines, what measures are to be taken to prevent, minimize or to correct for effects of gas production induced surface subsidence.

This paper deals with production and pricing policies for the Groningen gasfield. It will provide an evaluation of the past and a view to its future in a liberalized European gas market. The lifelong production potential and high productivity of the Groningen gasfield is unique. The extremely low-cost field is also unique in the sub-optimal manner in which it has been exploited over the whole of its forty year life to date. Its initial monopolistic situation in the West European energy economy created an opportunity for its development to be limited to production levels, whereby super-normal profits were generated on high value sales at the cost of consumers’ welfare.

The breach in the monopoly, through competition from Soviet gas, readily able to undercut Groningen prices, posed a serious threat both to unit values and market expansion. Fortunately, the fortuitous 1973/4 international oil supplies and pricing crisis restored Groningen’s fortunes. Following the upward price adjustments for foreign sales, the stage was set for achieving high company profits and massive government revenues. Dutch society in a broader 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 introduction 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 invalidity 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 been abandoned, and second, the need to reinstate Gasunie as an active, rather than a passive, player in the European gas market, in which other participants have subverted Gasunie’s earlier dominance.

The second part of the paper will examine, whether and how these changes can 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 fields policy’ and the balancing role of the Groningen field. The liberalization of the European gas market, together with changes in the pattern of supply 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.