Will Norway Help Brussels?
Norwegian centrality in the European energy mix is nothing new. Norway is Europe’s second supplier of gas after Russia, representing 24% of all European gas imports. Logically, one would expect the country to increase production, anticipating a significant increase in prices and possible disruptions of Russian gas to Europe. But this is not the case. While a flurry of deals dominates the morning of Tuesday, worries emerge. What will happen to Norwegian gas production in the coming months?
Oslo should be well aware that if it wants to maintain its position in the future, it should give up some profits in the coming months. The crisis with Russia could indirectly trigger a deep political crisis in Europe. That would turn into an economic crisis that, in the long run, would have a serious impact on Norway as well. Despite some problems in the past, Norway probably knows that it is in its best interest to support the European Union.
PRELIMINARY FIGURES: DECREASE OF PRODUCTION IN MAY 2014
‘Total gas sales (in May) were about 8.2 billion Sm3, which is 0.8 GSm3 less than the previous month,’ reads a note released by Norwegian Petroleum Directorate (NPD).
According to preliminary figures for May 2014 published by the Norwegian government agency, the country’s production did indeed continue its bearish trend from March, registering a year-on-year 9.4% decrease. While production in May 2013 was over 9 million GSm3, NPD said the country produced 8.17 GSm3 of gas in May 2014. It is even below forecasts.
Over the last 17 months, gas production has been lower than this only in August and September 2013. According to NPD’s data, gas production is expected to further decrease in June.
OFFSHORE PAY NEGOTIATIONS: STRIKES ON WEDNESDAY?
In this context, the problems with the offshore pay negotiations are not of any help. The deadline to reach agreement is 24:00 on Tuesday. And, at 23:00, the involved organisations did not publish any press releases about a reached agreement.
According to Reuters, the strike could cut Norwegian natural gas output by more than 6% or some 15 million cubic metres per day.
‘Seventy-six employees of GdF Suez and 154 in ExxonMobil could strike on Wednesday if no solution is found through mediation. Members of the Norwegian Organisation of Managers and Executives, the GdF personnel all work on Gjøa. If agreement fails to be reached with the union, production from this field will cease and 28 people will be left offshore as security staffing. Should no agreement be reached with the Norwegian Union of Energy Workers (Safe), the ExxonMobil workers will down tools and halt production from Jotun, Ringhorne and Balder. A total of 57 people will remain offshore as security staffing,’ reads a note released by Norsk Olje&Gass on Tuesday morning.
The Safe and Lederne unions and the industry body Norwegian Oil & Gas (Norog) have been negotiating a pay pact for weeks. Safe and Lederne are the only two unions that did not agree on the early retirement scheme. The unions have said they would put 230 workers on strike.
‘Norwegian practice when employers and unions fail to reach agreement on a pay deal is to go to the National Mediator. Industrial action is forbidden until the mediation process has ended,’ explains another press release.
The state mediator, which has got what it takes to promote an agreement, is expected to intervene on June 19-20.
FLURRY OF DEALS
In the while, deals among Norwegian companies took place one after the other.
A couple of weeks after Det norske’s acquisition of Marathon Oil Norge, Tuesday did indeed witness three offshore deals, with several Norwegian companies involved.
Lundin Petroleum and OMV (Norge) AS increased their stake in Lundin Norway-operated PL359, which contains the Luno II discovery.
‘The Luno II discovery was made by Lundin Petroleum in 2013 and is located in PL359 in the central North Sea sector of the Norwegian Continental Shelf on the south western flank of the Utsira High approximately 15 kilometres south of the Lundin Petroleum-operated Edvard Grieg field. An appraisal well will be drilled on the Luno II discovery and is expected to spud during June 2014,’ Lundin Petroleum wrote on Tuesday, explaining that it will acquire a 30% interest from Premier Oil for a cash consideration of USD 17.5 million.
At the same time, Lundin Petroleum will sell a 5% interest to OMV (Norge) AS. As a result, Lundin’s share will increase to 65% and OMV (Norge) AS will have a 20% interest in the licence. Statoil will hold the remaining 15%.
“We are pleased to be delivering against our promise to monetise non-core assets. We will continue to focus our capital and activities on projects where we are best positioned to add value,” Premier Oil’s Chief Executive Simon Lockett commented.
Also on Tuesday, Det norske oljeselskap and Spike Exploration clinched a deal for an asset swap in the North Sea.
‘Det norske oljeselskap ASA (“DETNOR”) has signed an agreement with Spike Exploration to swap a 10 percent interest in licence 554/B/C containing the Garantiana oil discovery for a 20 percent interest in license 457 containing parts of the Ivar Aasen deposit,’ Det norske oljeselskap said on Tuesday.
NORWAY’S ROLE IN EUROPEAN STABILITY: TREAT OR TRICK
It is clear that Norway can play a key role in the coming months, especially in case of disruptions of Russian gas to Europe. Serious problems between Brussels and Moscow would automatically increase the attractiveness of Norwegian offshore projects, as they would push gas prices up and create room for other contracts to be signed. Europe would need every single molecule of Norwegian gas.
In the past, Norway’s Statoil and Russia’s Gazprom have been helping each other, carefully avoiding a price war and supporting minor adjustments to make alternative projects unprofitable. As Société Générale's Thierry Bros pointed out a few weeks ago in an article for Natural Gas Europe, Norway and Russia walked hand in hand. Statoil and Gazprom also ‘managed to reset spot prices at a level that is acceptable to them.’
What remains to be seen now is Norwegian reactions to an eventual crisis. Will Oslo support Brussels fearing an implosion of the European Union under the weight of a likely political crisis and instability in the Eastern European countries? Will Oslo understand that it is in its interest to support European energy strategy?
Some signs of this awareness came last week. Vidar Helgesen, Minister and Chief of Staff at the Office of the Prime Minister, said that Norway wants to take a more active role in European policies. Will it translate into an economic support? Will it flow into an agreed energy strategy? Major questions remain to be answered.
Sergio Matalucci