WoodMac: Dutch gas decline seen despite incentive

By OGJ editors
HOUSTON, Dec. 7 -- A government incentive starting in 2010 will stimulate development of small fields off the Netherlands but won’t prevent a looming decline in overall Dutch gas production, says Wood Mackenzie Ltd., Edinburgh.

The problem, says Lennert Koch, author of a new report on the subject, is that the incentive doesn’t target “the real prize” of unconventional resources.

The incentive allows an extra deduction from Holland’s Petroleum Profit Tax of 25% of capital investments in offshore gas fields that meet two of three criteria involving field size, distance from infrastructure, and productivity.

“We expect it to result in more small fields being developed and additional exploration wells being drilled on small prospects,” Koch says in a video podcast on the WoodMac web site. “But, in terms of volumes, the incentive will not have a substantial impact on overall Dutch production.”

He cites estimates by Dutch authorities that the incentive might lead to development of an additional 20 billion cu m of gas.

“This is an ambitious target, considering the limited scale of upside from the incentive,” he says.

While significant for small fields, the increment represents less than one fourth of annual Dutch gas production, Koch points out.

New production from marginal fields won’t offset a production decline that WoodMac expects to begin in 2011.

“To reverse the decline,” Koch says, “a new conventional play needs to be uncovered, or—more likely—the unconventional gas resource base will need to be produced.”

The Netherlands has an unconventional gas resource estimated at 250 billion cu m of gas in place. The resource includes shallow and tight gas, coalbed methane, and shale gas. Unconventional gas production has begun from shallow and tight formations.

“Massive upside exists if the economics can be shown to work,” Koch says.

But unconventional resources probably won’t qualify for the new incentive because they’re often large and close to existing facilities and pipelines. And production from coalbed methane and shale gas will be onshore.