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A Massive Natgas Production Cut You Didn't Hear About

The natural gas market in North America is fretting about over-supply. But in another one of the world's key natgas centers, the problem is exactly the opposite this week.

The place is Western Europe. Where unexpected events may have tipped natgas into shortage -- pushing prices higher.

On Monday, the government of the Netherlands announced significant production cuts for the country's giant Groningen natgas field. Immediately restricting the output of the field to 16.5 billion cubic meters (bcm) for the first half of 2015.

That's a sizeable drop in output from Groningen. Suggesting that the field will produce something on the order of 33 bcm of natgas for the full-year 2015. Which would represent a 16.5% cut from the previous field production target of 39.5 bcm yearly.

This is critical to natgas supply not just for the Netherlands, but for Europe as a whole. Given that Groningen is Western Europe's largest gas producer -- and has long been an anchor of supply for the region.

And the lost production here can't simply be brought back if prices rise. The field output is being restricted because of concerns over earth tremors in the area. With the Dutch government having come under pressure to keep output low in order to protect public safety.

That means natgas buyers across Europe will have to look elsewhere for supply. And that's already having an effect on prices.

Platts reports that natgas prices in the U.K. particularly have been climbing. Hitting 52.50 pence per therm, or about $8 per mcf this week.

The Dutch production cuts could well drive U.K. prices even higher. Data show that natgas imports from the Netherlands into the U.K. have fallen off a cliff since the Groningen restrictions were announced. With flows on the key Bacton pipeline system having dropped to 6 million cubic meters per day, down from 30 million cubic meters just last week, prior to the Dutch decision.

This could be a sleeper trigger for natgas in this part of the world. Watch for continued data on flows into key markets like the U.K. -- and surges in prices if shortages persist.

Here's to a big shakeup,

Dave Forest

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