* Annual output to be cut to 40 bcm by 2016
* Previous outlook was 49 bcm per year until 2020
* Will reduce government revenue by 1 bln euros by 2016
By Sara Webb and Anthony Deutsch
AMSTERDAM, Jan 17 (Reuters) - The Netherlands will cut gasproduction at Groningen, the largest gas field in westernEurope, by about a quarter over the next three years, theEconomics Ministry said on Friday, bowing to public concernsover earth tremors in the area.
The decision to cut production will mean lower revenues forthe government at a time when it is already struggling to meetthe European Union's budget deficit targets, even after years ofausterity measures.
"The studies showed that there are risks and consequences,including earthquakes," of the gas extraction in Groningen,Prime Minister Mark Rutte told reporters at his weekly pressconference before the details were announced.
"They not only cause material damage but also seriousemotional damage. The cabinet understands that people areworried."
The first tremors were reported in 1986 nearby in Assen, andsince then about 1,000 have been recorded in the area, with amaximum magnitude of 3.6 on the Richter scale, according to theDutch Meteorological Institute. Local residents want gasproduction to stop after the tremors caused cracks and otherdamage to homes and buildings.
Government revenues from the Groningen gas field amount toabout 12 billion euros ($16.3 billion) a year.
The reductions in output will cut state income by 600million euros in 2014, 700 million in 2015 and 1 billion eurosin 2016, excluding additional costs earmarked for damage,infrastructure and investments in the local economy that wereagreed by the cabinet on Friday, according to the EconomyMinistry.
The ministry said production would be cut in 2014 and 2015to 42.5 bcm and in 2016 to 40 bcm, adding that it wastechnically possible to reduce Groningen's output to 30 bcm ayear and still meet domestic demand.
The field's production amounted to 53.8 billion cubic meters(bcm) in 2013, mainly due to an unusually long and cold winter.The annual outlook to 2020 was previously for around 49 bcm.
PRICE RISE ANTICIPATES MOVE
Gas from Groningen is sold mostly to utilities and largeindustries in the home market, although some gas is piped toGermany, Italy, France and Britain.
The gas market has been expecting a decision to cut output,which has already driven up gas prices, analysts said.
"The decision is overall bullish for gas prices, butcontracts did not move much today as the market already pricedthe news in earlier this week," said Oliver Sanderson, seniorgas analyst at Thomson Reuters Point Carbon.
Dutch wholesale gas prices for delivery next winter haverisen by 65 euro cents since the start of the week. They tradedat 27.78 euros per megawatt-hour (MWh) at 1300 GMT on Friday,only slightly higher than the opening value for the day.
The gas field near Slochteren in the north of theNetherlands is operated by a joint venture between Royal DutchShell and Exxon Mobil called NederlandseAardolie Maatschappij BV.
Gas from the field goes to GasTerra, a Groningen-basedinternational company that trades in natural gas.
Discovered in 1959, the Groningen gas field has beenexpected to continue to pump natural gas for at least another 50years.
The field has produced more than 2 trillion cubic meters sofar and has more than 700 billion cubic meters remaining.