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with Jan Treffers, Managing Director, GDF SUEZ E&P Nederland BV

01.03.2010 / Energyboardroom

The oil and gas industry in the Netherlands has witnessed a growing trend of majors leaving the country in search of more profitable markets. Meanwhile GDF SUEZ E&P Nederland B.V. already present in the country for decades – has taken advantage of the big players’ departure to become the biggest offshore E&P player in the Netherlands. Why is the company taking the opposite direction and investing in a market where others are leaving?

You have to bear in mind that even though GDF SUEZ is a very large corporation with a turnover of EUR 83 billion in 2008 and 200,000 employers its E&P business is relatively small compared to the traditional big E&P players. GDF SUEZ only started its E&P activities in 1994 (with the acquisition of EEG).

Since then we have quickly built up our assets portfolio as majors are changing their focus to other areas. Fortunately, GDF SUEZ’ strategy to grow its assets in the North Sea – close to its main energy markets – is in line with the trend of majors revisiting their portfolio and divesting their assets if they don’t fit their strategy anymore. I would not be surprised if this process continues in the coming years, especially with offshore assets.

Up to now, GDF SUEZ has made use of this trend twice by buying assets from NAM in 2003 in the D, G and K areas and by sealing the acquisition of important assets along the NOGAT pipeline in 2008, which included both fields and pipeline. Both acquisitions fit very well in our portfolio since we had many years of experience with operating the Noordgastransport B.V. (NGT) offshore pipeline system.

The reason we are able to operate fields in an area with higher production costs is due to being a smaller E&P organization; we can reduce operating costs and increase efficiency. Even more important, GDF SUEZ wants to grow production through exploration. We have been drilling three to four exploration wells per year – which is a considerable number for a mature area such as the Netherlands. This tactic has brought us important new reserves which we have developed the past 10 years.

What are your prospects for growth in E&P in the Dutch continental shelf in the coming years and how successful has the company been in terms of growth in 2009?

In 2010 we are expecting to continue the current pace of exploration. In 2009 we have made one discovery; nevertheless our average economic success rate is above 50%, still an encouraging percentage. GDF SUEZ E&P Nederland is doing a lot of near-field exploration, making use of new 3D seismic data, shot in 2008 in its K and L blocks. We are now almost ready with data processing and interpretation which hopefully will lead to drilling some new prospects in 2010/11. The improved seismic image and techniques and the presence of infrastructure still in place makes it possible to explore and develop these fields. These are blocks which we have started to explore 40 years ago and from which we have produced gas for the past 35 years.

GDF SUEZ E&P Nederland has also developed new areas such as the G block in the Dutch Continental North-East area, where we started our operations in 2000. This area still represents 30-40% of our production in the country.

As one of the biggest experts in the Dutch Oil and Gas industry, what is your assessment over the current legal framework and institutional set up in the Netherlands? Do you believe that the right incentives for further investments in E&P are in place or is there still room for improvement?

In 2003 the “depreciation at will” -act was abandoned, which I still think was a big mistake. Through NOGEPA, GDF SUEZ E&P Nederland has tried to reintroduce this measure ever since. We were not successful in the beginning but ultimately NOGEPA has been able to propose a new stimulation measure in which at least free riders are eliminated by a kind of tax stimulation which should promote the exploration of very small fields and the development of existing reserves now considered uneconomical. In itself this is a step in the right direction and may attract new activities, but it is too early to say if it will actually work.

Better than the legal framework, the institutional set up we have in the Netherlands with EBN as a shareholder works very well. On the one hand E&P companies are competitors, but in a small area with limited infrastructure you have to cooperate in order to be able to achieve ultimate recovery of the remaining reserves. The role of EBN is i.e. to stimulate this cooperation.

Not forgetting that the Small Field Policy has been a very important tool to attract investors – knowing that you can always sell your gas is a very important incentive, as well as knowing that you will get the market price for it. I’m absolutely convinced that this not only stimulates existing players but attracts new players as well. In short, the infrastructure is already in place, companies have a safe buyer, the country has stable and market-friendly laws and the final market is extremely close.

However, the Netherlands still has a stiff tax system and in the long run more stimulation will be needed– not only for the exploration and development of the small fields but also to be able to produce the last m3 of gas out of the ground. Hence, the current incentives for the small fields should be just a start. Then in due time expansion will be needed.

Thanks to technology breakthrough the Netherlands can also provide great potential in areas such as tight gas fields, but their exploration still requires lots of research and incentives. It involves a lot of risk and as long as there are fields with less risk and better pay-out this will only be developed very slowly. For this potential to be fulfilled prices need to continue to rise and the local government needs to stimulate such developments.

An important project in the agenda of not only the Dutch government but also important companies based here is the transformation of the country in the so called ‘European Gas Roundabout.’ How viable do you believe this project is and how close is it to becoming reality?

The European Gas Roundabout is clearly a very viable project – we have missed some opportunities in the past. For instance, the Netherlands should ask itself why it missed all the important Norwegian pipelines built in the past; they went to Germany, to Belgium, to the UK but not to the Netherlands.

The Netherlands has an excellent transportation system and a vast knowledge in the field; we have all the possibilities to attract these new investments and become a real gas roundabout of NW Europe. It is not too late, new additional capacity will have to come from Russia, Norway, and UK.

GDF SUEZ can play an important role on these projects since we operate two main gathering pipelines in the Dutch North Sea, with NGT also connected to the UK and NOGAT connected to Denmark and Germany. It is also important to point out that we have a connection to France through the Norwegian system. These lines are also very important for the development of the Small Fields in the Netherlands. If we are able to keep them operational by importing gas it will also prolong the window of opportunity for the Small Fields.

Local production, storage capacity, pipelines, LNG terminals, plus the knowledge of infrastructure put the Netherlands in an ideal position to play that role of the North-Western European gas roundabout.

GDF SUEZ is also playing an important role in CCS projects in the Netherlands, as shown by your pilot project under elaboration together with E.ON on the Maasvlakte site in the Port of Rotterdam. How promising are these pilot projects and how close is CCS from becoming an economically viable activity?

One of the options to reduce greenhouse gases is to store CO2 in the depleted gas fields. GDF SUEZ E&P Nederland has been injecting CO2 from our K12-B field since 2004. The CO2 that we extract from our own gas production is reinjected into the field. This pilot project (initially subsidized by the government) offers the opportunity to gain experience in CO2 storage in existing gas fields and open a new front for gas storage in the depleted Dutch fields offshore.

Naturally, this is as yet a pilot project. It is responsible for the storage of 20,000 tons of CO2 per year, but we believe that ultimately depleted offshore fields could become quite promising for CO2 storage. The project you mentioned is being carried out by Electrabel (a GDF SUEZ company) and E.ON. We will be responsible for the operation of the transportation part of the project. This project, supported by subsidies from the EU and the Dutch government, could be the beginning of an offshore infrastructure on the Dutch continental shelf and thus giving depleted gas fields a new life.

Looking towards the future, what are your main ambitions and expectations for GDF SUEZ E&P operations in the Dutch continental shelf?

Our biggest challenge is to continue to be competitive in operating and investment costs and remain successful in exploration. We are already very cost competitive but we have to keep on building our strengths on this side. Furthermore, with our vast knowledge of the sub surface of the Dutch offshore we still believe that there are interesting exploration opportunities offshore in the Netherlands. We must make use of the window of opportunity while our extensive infrastructure is still out there. We will plan an occasional exploration well in a new area although we have to realize that we are operating in a mature basin.

The Netherlands still has some treasures to be discovered and developed. It will be more difficult to find them and it will be more challenging to make them economical, but if you do it in a cost effective way and with a dedicated and experienced team such as ours, you will be able to extract oil and gas from offshore the Netherlands for quite some time yet.



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