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Norway Looks For Bigger Role In European Gas Markets

Tsvetana Paraskova

Norway’s oil and gas major Equinor—which provides around 25 percent of the European Union’s (EU) natural gas demand—aims to play a more active role in selling its natural gas on the European market and take advantage of spot market prices where profitable.

That’s the message which Equinor’s top management conveyed to the market and analysts regarding natural gas sales on the conference call on the Q2 financials this week.  

Most Norwegian gas sold on the European market is delivered to Germany, the UK, Belgium, and France, where Norwegian gas accounts for between 20 and 40 percent of total gas consumption.

Despite plans for more exposure to the spot market, Equinor saw in Q2 and will continue to see in Q3 benefits from forward sales of its gas, the managers said on the call.  

“We have sold and are benefiting then from the long-term gas sales as of this quarter,” Svein Skeie, Equinor’s Senior Vice President for Performance Management and Analysis, said.

Equinor sold its natural gas at US$5.49 per million British thermal units (MMBtu) in Q2, compared to an average price of US$4.09 for the UK National Balancing Point (NBP) benchmark price. Equinor’s gas price realizations will still be above the NBP price in Q3, Skeie said. 

According to Lars Christian Bacher, Equinor’s Executive Vice President and chief financial officer, “the shift that we’re doing is that we want to expose more to the spot market, and we see that we benefit from having entered into contract more on a season ahead than a year ahead, and both for this quarter and we expect the same to happen for third quarter and then gradually that will fade out.”

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“But the shifts to more to the spot market does not limit us. On the contrary, we would like to take a more active role in placing sort of our gas volumes in the market,” Bacher added.

In Q2, Equinor produced more gas than oil and liquids, but noted in its results release that “The liquids share of the production mix was low in the quarter and will increase going forward.”

The higher gas production in Q2 was mostly due to the start-up of the   Aasta Hansteen gas field, which contributed with around 60,000 barrels of oil equivalent per day (boepd), Equinor said. Aasta Hansteen gas is transported through the Polarled pipeline to the Nyhamna terminal for further export to the UK, while condensate produced at the field is loaded into tankers and transported to the market.

Even if overall production in Q2 was relatively stable on the year, Equinor’s financials were impacted by “lower prices, high turnaround activity and some quarter specific items,” the company said.

Equinor’s production mix will include more oil once the giant Johan Sverdrup oil field starts up in November.

“We expect the liquid share of the production mix to come up again over the next couple of quarters and even more so when Johan Sverdrup comes onstream during November,” Bacher said on the analyst call.

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Eldar Sætre, Equinor’s president and chief executive, said that the company had further cut investment costs for Johan Sverdrup’s Phase 1 development by an additional US$346 million (3 billion Norwegian crowns), bringing total cost reductions to US$4.6 billion (40 billion crowns) since the development plan was submitted.

“With a planned start up later this year, and faster ramp up to reach plateau production during summer next year, the project will produce and create substantial value for decades to come,” Sætre said in the company’s statement.  

Commenting on Equinor’s Q2 performance, Bernstein analysts said that the lackluster financials were mostly because of short-term factors and stressed that the update on Johan Sverdrup was the more important takeaway.

“That’s where the story just got better today,” Oswald Clint at Bernstein told the Financial Times.

“Capex is reduced by a further $0.35bn on the project which is incredible with only three months to go and the ramp up is now 9 months versus 12 months previously,” Clint noted.   

By Tsvetana Paraskova for Oilprice.com

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