By: Anya Marcelis

Profundo recently published a report commissioned by Friends of the Earth Netherlands (Milieudefensie), in which the costs from earthquake-related damages caused by gas extraction in Groningen province (in the north of the Netherlands) were estimated. This report found that annual costs could potentially rise in the coming decade to over 1 billion euros. The NAM, the joint-venture of Shell and ExxonMobil producing the gas, and the Dutch government still underestimate the problem and budgeted only a fifth of this potential amount to compensate for all earthquake damages in Groningen. For property damages, actual compensatory payments until 2016 are already more than double the budgeted amount for the entire decade. Some of the most significant expenses are still to be paid out, related to real estate devaluation and reinforcement of residential and public property structures.

In addition, from concern for future earthquakes, the annual extraction threshold decreases every year. With costs going up while revenues are going down, our estimates indicate that potential compensation costs could rise to as much as 27% of the total revenues from gas extraction.

Estimating costs and revenues is hampered, however, as little financial transparency is required from the NAM. Limited information is provided on the costs and budgets of compensation and the information available is often published by organisations other than the NAM. Until now, the NAM has largely focused on providing information on damage types and compensation procedures. In contrast, little has been published concerning the actual costs of these processes, and what the NAM or the Dutch government’s expectations or plans may be if damages continue to occur at the present level in the future. This demonstrates a focus on short-term gains rather than potentially extensive long-term damages.

The non-transparent and inadequate budgets for damage compensation are worrying for the affected residents in the Groningen province. The NAM’s response to the report does not address these concerns and a response from the Dutch ministry of Economic Affairs is not yet available. For the residents, it is important that compensation budgets also cover unknown costs, such as healthcare and judicial costs, and costs born directly by residents. The NAM was recently found liable for costs related to psychological and other immaterial damages.

Overall, the government and the NAM should move from a passive to a pro-active approach regarding compensation for the damage done by the extraction of the Groningen natural gas. Financial transparency on costs and revenues of the gas extraction industry in Groningen should be improved and the execution of compensation procedures streamlined. Rather than allowing for a thorough and effective procedure, the present involvement of various government and private instances dilutes the process.

For more information on this topic, please check our new report.
You can also contact Anya Marcelis at a.marcelis@profundo.nl.