THE HAGUE, 27/02/07 - The Dutch government should "radically" reform its natural gas production policy, says GasTerra director Gertjan Lankhorst. Tax breaks for operating smaller fields should be re-introduced, and the state should be content with lower profit margins, he believes.

Gasterra is the trading arm of former state gas company Gasunie, split off in 2005. In an interview with Het Financieele Dagblad yesterday, Lankhorst said he is "convinced" that 150 billion m3 of gas can be extracted economically from small fields. This quantity, with a market value of around 30 million euros, is about twice as much as current total Dutch gas production (about 70 billion m3 a year). Of this current production, about half comes from the large continental Groningen field and the rest from small fields, mostly in the North Sea.

"Producers that extract gas from small Dutch fields have cut their production forecasts by 250 billion m3 in the past five years," says Lankhorst. One of the reasons is the Dutch government's abolition of tax breaks for North Sea gas production in 2003, he adds. The large oil companies prefer to concentrate on mega-projects in big gas countries like Russia and Qatar. BP sold its gas production interests in the Netherlands to Taga of Abu Dhabi.

"It would help" if the tax breaks were reintroduced, says Lankhorst, "but this is not enough to get the 150 billion m3 out of the ground." For this, licence policy should be changed. "You can auction licences. Then you ask producers for what share of profit they are willing to produce the gas. The company with the most favourable proposal wins the licence." That would attract players like Total, Wintershall and Gaz de France, Lankhorst predicts. They have a lower cost base and are willing to invest in smaller fields, he stated.

The State must also accept a smaller share of the profits, Lankorst believes. Currently, the State creams off 70 percent. "The 'government take regime' must be radically reformed. The government must see whether it can be satisfied with less for new projects."