March 20, 2015 / 4:20 PM / 5 years ago

UPDATE 1-Dutch Gasunie to spend on foreign gas conversion

(Adds details from news conference)

AMSTERDAM, March 20 (Reuters) - Dutch gas grid operator Gasunie is preparing a 200 million euro ($216 million) project to make foreign gas compatible with the national network after concerns over earthquakes forced officials to cap domestic output.

The move follows a decision last month by the Dutch government to cut output from the Groningen gas field, Europe’s largest, because of concern over small quakes in the northern region.

The government has asked the state-owned company to begin preparations for the conversion project, Gasunie Chief Executive Han Fennema said. It aims to prevent supply shortages should deeper production cuts be imposed in future.

The final investment decision is slated for the fourth quarter, with completion expected by the end of 2019.

The new facility will mix nitrogen with high-caloric gas from Russia, Norway or possibly with imported LNG, to make it resemble the low-caloric gas currently used by gas heating systems in millions of Dutch households.

The government had planned to produce 39.5 billion cubic meters of gas in Groningen this year, but abruptly curtailed production to a 33 bcm level in February after a report by the country’s Safety Board said it had “failed to act with due care for the safety of citizens in Groningen.”

Economic Affairs Minister Henk Kamp is due to decide on future production on July 1.

Extraction at Groningen has resulted in increasingly strong earth tremors, some measuring as much as 3.6 on the Richter scale, which have cracked buildings and led to protests.

Gasunie has said that if Groningen production were to be reduced below 30-35 bcm, it could run up against the limits of its ability to physically supply enough low calorie gas.

Gasunie on Friday reported a 2014 profit of 603 million euros on sales of 1.65 billion euros.

The tremors in Groningen have had “major consequences,” Fennema said.

“Social support for gas and gas production is disappearing,” he told reporters in Amsterdam.

“Where gas was once the preferred choice, it has now become just another form of fuel, with its own drawbacks.”

The money Gasunie will spend on the facility will be on top of 300 million euros in annual capital expenditures it expects in 2015-2017, most of which will go on replacement projects. ($1 = 0.9262 euros) (Reporting By Toby Sterling; Editing by Oleg Vukmanovic and Pravin Char)

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