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Groningen Earthquakes: Uncertainty for NAM is increasing further

Printed below is an English translation of an article published by the Dutch Financial Times, Financieele Dagblad

Shell and ExxonMobil are the shareholders, so the real power lies in The Hague and Texas.

 Carel Grol • Entrepreneurship: 24 JAN 2018

The NAM must pay. Again. The gas extraction company already had to pay for cracks in walls and for psychological distress in people in the earthquake area, and now the company also has to pay for the reduction in the value of houses through gas production. Regardless of whether there is physical damage to these houses and whether they are sold, the court ruled yesterday. According to the Groningen lawyer Pieter Huitema, who represents many of the homeowners, it will cost NAM € 1 billion. “And maybe more.”

For example, the year is less than a month old or the Dutch Petroleum Company has already received some hard taps. Two weeks ago, in Zeerijp, the quake of 3.4 was on the Richter scale, the heaviest earthquake in five years. Immediately, Minister Eric Wiebes of Economic Affairs and Climate judged that gas extraction had to go down. The torchlight procession in Groningen, as a protest against the extraction, attracted some ten thousand people. A record.

Risk modeling framework

Because the company does not have much sympathy. The NAM causes the damage but trains the compensation, that is how it sounds in Groningen. Characteristic is the letter that NAM wrote last week. ‘From a technical point of view, the quake fell within the current risk modeling framework’, according to the NAM in a further technical discussion. The company felt insulted by the State Supervision of Mines Supervisor. ‘For the NAM there has been a great deal of uncertainty about what requirements it has to meet in the area of ​​safety. That is unacceptable ‘, according to the letter. In particular, communication about this ‘important and sensitive issue’ should not be too simple.

That’s what the company wrote the day after three thousand new claims were received – four thousand old have yet to be treated – and more than sixty people did not feel safe in their own homes because of the earthquake. It strengthens the image of NAM as a technocratic, almost unworldly company.

Margin

This may be because the NAM is an executive agency. Shell and ExxonMobil are the shareholders, so the real power lies in The Hague and Texas. The Americans are there in armor. For them, gas extraction from the Groningen field is primarily a technical and legal issue.

And of course business economics. How long is extraction still profitable, now that costs are rising and gas production is falling? Since 2012, NAM has paid around half a billion euros in damages. In 2016, the company recorded a profit of € 526 million. In one year, the NAM earned as much as it paid out in five years for damages – for the time being there seems to be enough margin on gas production.

Contracts

In addition, the company still has export contracts that it must adhere to. Moreover, NAM can play a role in the switch to clean energy. Hydrogen, geothermal energy, storage of CO2: these are all matters that have common ground with what NAM is doing now.

But that the uncertainty for the group is increasing is evident. What happens when the gas production goes down sharply, from now on 21.6 billion cubic meters to 12 billion cubic meters as is suggested, nobody knows. Wiebes warned in the House of Representatives last week that discussions with Shell and ExxonMobil about claims handling may become messy and bloody. But it remains to be seen how bloody the minister really works.

In any case, lawyer Huitema was satisfied. Public opinion is on his side, the court agreed with him. Of course the NAM can still go in cassation, Huitema said. “That will soon slow down again for two years. And that means that NAM does not take the problems in Groningen seriously. “The question is whether NAM can afford it.

After the quake in Zeerijp, Minister Wiebes immediately decided that the gas production had to go down.Photo: Getty Images

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