The tragedy of the gas bubble in Groningen

Opinion article

The tragedy of the gas bubble in Groningen

On 29th may 1959, the Dutch Oil Company (Nederlandse Aardolie Maatschappij, NAM) discovered a gas field in Kolham, Groningen. It would turn out to be one of the biggest gas fields in all of Europe. The Dutch government benefited in huge proportions from the gas revenues, but they appear to be more of a curse than a blessing. The last fifty years, the Dutch society consumed most of the revenues, instead of investing for structural improvements. Earthquakes due to the gas winning are getting more regular and intense. Inhabitants of the province Groningen are having the feeling that the rest of the country profits from the gas under their feet, while they have to deal with the consequences.

The using of gas revenues for extra governmental spending’s are one of the main causes of the so called “Dutch disease” in the seventies. During cabinet Den Uyl (1973 – 1977), 10% of the governmental spendings were funded by gas revenues. Subsidies, employment plans and other benefits led to a strong Dutch currency. Labor costs got so high that it became unattractive for other countries to cooperate with companies in The Netherlands. Company profits plummeted and led to a gigantic unemployment rate in the early eighties.

The Dutch Government has earned more than 250 billion euros from gas revenues. But instead of putting this money in a separate fund, politicians choose to spend it on other means. For example: they used the gas revenues for social benefits (including the infamous WAO), subsidies, lower tax rates and prestige projects. Apparently the gas was seen as a gift from mother nature and politicians could spend it anyway they want to please their voters. Today, gas revenues are aproximatly 12 billion euro’s each year and go straight to the governmental budget.

Spending of the gas revenues between 1959 and 2009:
• Social benefits: 24,8% (EUR 52,3 billion)
• Public administration and security: 20,1% (EUR 42,5 billion)
• Infrastructure (15,4% (EUR 32.5 billion)
• Collective health fund: 10,4% (EUR 21,9 billion)
• Education: 9,2% (EUR 19,5 billion)
• Interest: 7% (EUR 14,8 billion)
• Transmission to companies: 6,2% (EUR 13,1 billion)
• International cooperation: 3,5% (EUR 13,1 billion)
• Defense: 3,4% (EUR 7,2 billion)

A lesson could be learned from Norway. All the revenues from oil and gas are being put in a fund of which politicians can only use the interest for their projects. If The Netherland would choose to switch to this system of Norway, it would have huge implications for the treasure. It would cause a gap of around 12 billion euro on a total governmental budget of 182 billion. If the government chooses to raise taxes to fill in this amount, each household has to pay an additional 2.000 euro’s in taxes.

Meanwhile, earthquakes that are caused by the exploitation of the gas bubbles are intensifying. In 2013 there were 127 earthquakes in the province Groningen, resulting in damage to buildings, loss of property value and above all the fear for more intensive earthquakes that one day might result in serious or even deadly injuries. Groningers are feeling abandoned and have recently started protests at gas installations, where protestors are demanding action from the government.

In all: the discovery of the gas bubble seemed to be one of the best things that happened to The Netherlands. But the government failed to do something good with the revenues, spending it on gifts to their voters which led to huge unemployment rates in the eighties. With a lazy government which is postponing necessary reforms by using gas revenues for the governmental budget, the bill will come on the plate of a new generation that has to fill in the gap of 13.5 billion when the gas bubble is empty and almost nothing of all that wealth remains. An inhabitant of Groningen, his property badly damaged because of earthquakes, wonders: what was the purpose of all of this?

Geschreven in januari 2014 voor minor Journalism aan de Hanzehogeschool. Nergens gepubliceerd