The province of Groningen – the northeastern most in the Netherlands – is not densely populated. Just over 500,000 people live across its sweeping green plains, a landscape dotted with 18th century stately homes and medieval churches.
Yet by another metric, the province is relatively crowded. In 1959, a vast natural gas reserve – the largest in Europe – was discovered under Groningen. By 1963 the Dutch state, in partnership with oil and gas giants Shell and Exxon, had begun extracting gas there and suddenly the region was reshaped into one of the most densely populated extraction zones in the world.
Gas extraction in Groningen fundamentally changed energy use across Europe. Previously, Western Europe had been heavily reliant on coal and oil, but the discovery of this cheaper and lower emitting fuel saw the establishment of a new distribution network across the continent.
Groningen gas was also transformative for the Netherlands. The revenue from extraction dramatically changed the economic structure of the country, generating €363 billion for the national treasury and proving instrumental to the establishment of the Dutch welfare state.
For their part, Shell and Exxon- through a joint venture entitled Nederlandse Aardolie Maatschappij, better known by its acronym NAM – have made around €66 billion in profit from gas extraction since the early 60s.
The profitability of gas extraction, however, came at a considerable cost. In 1986, a 2.8 magnitude earthquake hit Assen, a town just south of the city of Groningen, the province’s capital. It was to be the first of more than 1,600 earthquakes that have shaken the region since – the most recent of which struck just last month.
Unsurprisingly, the earthquakes have taken their toll on the region. Since extraction began, around 150,000 people have suffered damage to their homes, and over 11,000 dwellings are still deemed unsafe. In some villages – such as Overschild in the East – around 80 per cent of homes require demolition and rebuilding due to earthquake damage.
Throughout the 2010s, it became apparent that the situation in Groningen was becoming untenable. A particularly severe earthquake in 2012 sparked a commitment from the Dutch government that gas extraction would be reduced, and various compensation and home reinforcement schemes were launched, the benefits of which have only partially materialised.
Finally, in 2018, the Dutch Ministry of Economic Affairs announced that gas extraction in Groningen would cease by 2030. In 2019, however, the third strongest earthquake ever recorded in the province struck, and the government was compelled to bring the closure date forward. In October 2023, gas extraction in Groningen stopped for good.
But while the ending of gas extraction was welcomed by most Groningers, Shell and Exxon did not take the loss of future revenue so well. Through their joint venture, NAM, the majors have launched two arbitration cases against the Dutch government, citing loss of income due to the earlier gas field closure date. As part of the cases, they also contest their responsibility for damage to the area, and the degree to which they should be liable for compensation payments to Groningers.
More recently, Exxon has taken things a step further. On 30th September 2024, it filed a case with the International Centre for the Settlement of Investment Disputes against the Dutch government. In a post on LinkedIn shortly after, Exxon claimed that the Dutch government “has unilaterally taken measures on several occasions that arbitrarily and disproportionately disadvantaged ExxonMobil as an investor.”
In doing so, it signaled its intention to use investor state dispute settlement (ISDS) – an obscure component of international investment law – to extract, potentially, billions of euros from the Dutch state in compensation.
Exxon's ISDS case
ISDS “first developed in the 1960s as a post-colonial form of compensation when former colonial investors saw their physical assets nationalised by governments who were emerging [into independence]”, says Dr Patricia Ranald, the convener of the Australian Fair Trade and Investment Network and an honorary research associate at the University of Sydney.
In response, organisations such as the OECD began to develop a system by which investors could receive compensation for these assets, and so a nascent form of ISDS emerged.
But over time, ISDS has been incorporated into multiple international investment treaties and has developed into a sprawling global legal system that operates outside of national court structures, and which effectively enables foreign companies to sue governments whose policies threaten their assets in that country.
“That’s why this mechanism is so problematic”, says Eunjung Lee, a senior policy advisor at E3G. “By being a foreign investor, you can just circumvent domestic legal systems, sue a state and bring them straight to arbitration.”
But Exxon is a domestic investor, with a business incorporated within the Netherlands, so how is it bringing this case?
“They’re using a Belgian subsidiary, some kind of investment vehicle”, explains Bart-Jaap Verbeek, Senior Researcher at The Centre for Research on Multinational Corporations.
According to Verbeek, receiving an arbitration claim from this Belgian subsidiary came as a surprise to the Dutch government. “They’d never talked to [them] before. They had always been dealing with Exxon Netherlands”, he says. “It shows that Exxon is exploiting its corporate structure in order to sue the Netherlands.”
What’s more, the case is considered illegal by the European Court of Justice: Exxon is bringing the claim under the Energy Charter Treaty (ECT), an international investment agreement that was established in the wake of the Cold War. In 2022 however, the European Court of Justice (ECJ) ruled that intra-EU arbitration on the basis of the ECT is illegal under EU law.
Nonetheless, the ECJ’s ruling appears to have held little sway over the tribunals that oversee ISDS cases. “Tribunals say they are not bound by EU law, they operate under international law”, Verbeek explains. “I think that’s why Exxon felt comfortable enough to bring this case.”
Compensating Groningers
ISDS claims are highly secretive and the details of the case Exxon is bringing may not be made public for years, if ever. But according to a letter sent by the Dutch government to parliament last year, the claim relates to the same issues as domestic cases being brought by NAM: namely the premature closure of the Groningen gas field and a reluctance on the part of the companies to compensate residents for the damage caused by gas extraction, or to pay into home reinforcement schemes.
According to the letter, Groningen had suffered approximately €1.66 billion in physical damage, €548 million in depreciation damage and €84 million in non-material damage to the end of 2022.
These vast damages are reflected in the experiences of local people. For Coert Fossen, chairman of Groninger Bodem Beweging (GBB), a regional group campaigning on behalf of Groningers, “gas extraction has damaged the prospects of the area.”
“People move out or say you shouldn’t go there because it’s not safe, the house prices are going down. In other words, if you don’t have to, don’t go there”, Fossen says.
According to Agustín De Julio Pardo, a PhD candidate at the university of Groningen, the societal impacts of gas extraction have also been profound.
“Let’s say there was an earthquake in 2011 – your house was damaged and then it happens again in 2012 and then again in 2013. You get it fixed but they keep coming back. Especially in those cases, you have very clear negative health impacts”, he says. “We’re talking about sleeplessness, we’re talking about anxiety, depression. It’s a clear effect”.
To date, there have been a total of 263,893 claims for physical damage to properties, 18,708 of which are still in process with only around 3,000 scheduled for reinforcement or in the planning phase.
“People wait for years. It’s extremely time consuming, extremely difficult”, explains De Julio Pardo. “There are economic consequences – it’s harder to run a business in situations like this, for example, so SMEs are very hard hit”.
Despite the damage – and the €66 billion they have made in profit – Shell and Exxon repudiate any responsibility to compensate Groningers any further. As well as bringing arbitration cases – both domestic and international – the companies have also pulled out of ongoing compensation and reinforcement schemes.
According to the letter from the Dutch government to parliament from October last year, Exxon and Shell have not contributed to reinforcement projects since 2023 and still owe €550 million to the state. If the ISDS case, or the national arbitration cases are successful, not only will they never have to pay this sum, but conversely it is the Netherlands that will have to compensate one or both of the companies.
In its LinkedIn post from October 2024, Exxon said: “We ask the new government to enter into dialogue in order to reach a mutually acceptable solution. Such a regulation would be good for the Netherlands and all those involved, including the people of Groningen.
ExxonMobil hopes that an amicable settlement can be reached between the parties and looks forward to constructive agreements with the Dutch State.”
What happens next?
In February 2023, a parliamentary inquiry into the consequences of gas extraction in Groningen published its findings. The report was damning, concluding that the interests of the people of Groningen were “structurally ignored” during gas extraction, with “disastrous consequences”.
Initially, “people were relieved that finally they had been proven right. That the situation had been unjust, that they have been put in danger, that this situation was not acceptable to Dutch standards”, says Fossen.
But two years on, with thousands still awaiting compensation and hundreds across the region still living in temporary accommodation, much of that initial relief has dissipated.
“People in Groningen feel not only forgotten, but used by the state”, says Fossen. “It’s become clear that the state has earned a lot of money, the rest of the country has earned a lot of money, but the damage has been left to Groningen.”
Meanwhile, the arbitration cases proceed gradually. It may be months before an update on the ISDS case is made public and years before it is concluded. If Exxon is successful, the Dutch government could face a bill running into the billions.
This is not the first time the Netherlands has faced such a situation. In 2021, German energy giants RWE and Uniper brought ISDS cases against the Netherlands over the government’s adoption of a coal phase-out law that would ban coal-fired power generation by 2030. They sued the Dutch government for a combined sum of almost €2.5 billion and although the claims were eventually thrown out, the Dutch government still paid €4.5 million in legal fees, all at the expense of the taxpayer.
If Exxon is successful, “Dutch taxpayers, even the people living in Groningen, would have to compensate Exxon, even though it’s Exxon that should compensate the people”, says Verbeek. “It’s crazy. It’s totally irresponsible corporate behaviour”.
Camille Corcoran is Assistant Editor at Land and Climate Review. She has published investigations with outlets including BBC, The Guardian, Channel 4, The Times, The Independent, Private Eye and openDemocracy.
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