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EurOil COMMENTARY EurOil
What can Norway do to ease
Europe’s gas troubles?
In the short term, the willingness is clear but the options are few.
NORWAY
WHAT:
Norway has stated its willingness to expand gas sales to Europe.
WHY:
Norwegian production will rise this year, but largely because of the restart of the Hammerfest LNG plant.
WHAT NEXT:
Norwegian output is set to expand over the coming years but then contract towards the 2030s.
NORWAY has declared that it will do what it can to expand gas sales to the EU to help the bloc soften the blow from drastic cuts in Russian sup- ply this year, but beyond the impact of the Ham- merfest LNG plant’s relaunch in early June after extensive repairs following a fire, and modest production increases elsewhere on the Norwe- gian shelf, there it relatively little that the Nordic country can do to alleviate Europe’s gas crisis, at least not in the next five years.
Last year, Norway delivered 113 bcm of nat- ural gas via pipeline to the EU, covering around 23% of the bloc’s total demand. In contrast, Rus- sian sales exceeded 155 bcm. Official Norwegian estimates made at the start of this year were that these deliveries should reach 115 bcm in 2022, while the country’s overall exports should climb by 8% to 122 bcm, taking into account LNG exports. This projection for growth was largely based on the return of Hammerfest LNG in early June, bringing an extra 7.4 bcm per year of supply online. The plant was taken offline in September 2020, and so contributed nothing last year.
The EU and Norway notably clinched a new supply deal in June, under which the latter would ship an extra 100 TWh of energy to the Euro- pean market this year, or the equivalent of 9-10 bcm per year of gas.
“I never, ever mind being dependent on a close friend like Norway but we never again have to be dependent on somebody like Putin,” EU climate chief Frans Timmermans said following his meeting with Norwegian Energy Minister Terje Aasland in June.
Some of this supply volume may only relate to Hammerfest LNG’s restart. But soaring gas prices since Norwegian authorities last pro- jected production and export volumes this year have certainly encouraged suppliers to boost gas supply elsewhere where they can, including by reducing the reinjection of gas into oil reser- voirs - essentially sacrificing oil for gas revenues. In March, for example, the Norwegian energy ministry granted Equinor permission to expand output by 2.4 bcm per year at the Troll, Oseberg and Heidrun fields, as well as postpone some turnaround activity until later in the year.
In another encouraging development, the Baltic Pipe that will flow 10 bcm per year of gas from Norway to Denmark and Poland remains on track for launch in the fourth quarter.
Beyond this, however, Norway’s ability to pump
more gas to Europe in the near term is expected to be limited, including by current transport and pro- cessing capacity, even though the country clearly has political and commercial reasons for sending as much supply as possible. For its part, Oslo-based Rystad Energy predicts that overall Norwegian production will reach 126.5 bcm this year, but the consultancy is doubtful that any further growth can be achieved for some time. It estimates that over the next five years at least, the limiting factor will be transport and processing capacity. It will take years for Norway to develop the treatment plants and pipelines necessary to boost European supply.
Rystad estimates that Norway could in theory expand deliveries to close to 130 bcm per year, but this assumes minimal production outages. One such outage only occurred last month at the Sleiper gas field, with Gassco data showing that at its worst point, the outage that came after gas leaks were discovered, took 16.9 mcm per day of production offline.
Norway is also highly vulnerable to industrial actions. Its powerful labour unions negotiate for better terms on an annual basis, and rarely do the standoffs with employers not result in at least partial strikes. Just weeks ago, industrial action threatened to halt nearly 60% of the country’s gas exports, but fortunately the strikes were called off at the last moment, after Labour Minister Marte Mjos Persen stepped in to force a compromise.
“When the conflict can have such great social consequences for the whole of Europe, I have no choice but to intervene in the conflict,” she said afterwards. “It is unjustifiable to let gas produc- tion stop to such an extent.”
But with cost of living pressures mounting in Norway, as almost everywhere else, future strikes of such proportion cannot be ruled out.
Looking further ahead, Rystad expects Norwe- gian gas supply to peak towards the late 2020s and then enter decline, and that decline is set to become steep in the 2030s. But this assumes that no further discoveries are made. The good news is that Nor- way has remained very supportive of continued exploration activity for decades to come, unlike other European nations that have imposed bans. And its tax regime also gives significant incentives for operators to continue drilling and approving new investments in development. Maintaining that level of support will be crucial for maximising how much Norway can assist in EU efforts to elim- inate Russian energy from the mix.™
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w w w . N E W S B A S E . c o m Week 32 12•August•2022