(Bloomberg) — When the world’s biggest gas traders gathered in late April at a canal hotel on the outskirts of Amsterdam, the atmosphere was the same: coffee, croissants and arguments over bids for gas. winter to come. Then came news of a leak at Europe’s largest liquefied natural gas plant, located above the Arctic Circle in Norway.
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The problem – discovered during a planned test of the facility’s safety systems – was quickly resolved, but not before causing a momentary spike in the price of natural gas. Back in the Netherlands, we were uncomfortably reminded of the power of one company, Equinor ASA.
More than two years after Russia invaded Ukraine, causing energy prices to soar, the Norwegian oil and gas giant has quietly reclaimed the crown that once belonged to Russian company Gazprom PJSC. Norway now supplies 30% of the bloc’s gas; Gazprom supplied around 35% of all European gas before the war. And of the more than 109 billion cubic meters of natural gas exported by Norway to Europe last year – enough to power Germany until 2026 – around two-thirds were marketed and sold by Equinor.
As long as the bloc continues to rely heavily on fossil fuels, Norwegian hydrocarbons will be essential to keeping the lights on in Europe.
Equinor’s visibility “has changed dramatically with the reduction in flows from Russia,” said Irene Rummelhoff, the company’s head of midstream, marketing and transformation. “There was a time when (Europe) almost took us for granted. This is no longer the case.”
The company’s new prominence has also raised questions about whether European leaders are, once again, putting their countries at risk by relying too much on a single supplier. Although Norway is seen as a stable trading partner with a long and consistent history of supplying energy to Europe, prolonged outages and its handling of maintenance issues, both of which affect energy prices, have had ripple effects across the continent.
Part of the company’s good fortune is due to a broader shift in Europe’s relationship with fossil fuels, Thina Margrethe Saltvedt, chief sustainable finance analyst at Nordea Bank Abp, said in an interview.
Five years ago, “there was a lot of talk about the green transition and how we were starting to see the oil and gas industry decline,” she said. “Then there was Covid, then the war in Ukraine, and now we just don’t see it anymore. The focus has shifted to energy security.
The idea that gas is not going away anytime soon, a view strongly supported by the gas industry, has put Norway at the center of discussions about securing Europe’s energy resources. German Economy Minister Robert Habeck, who is also in charge of climate policy in the region’s largest economy, made an official visit to Oslo in early January 2023. Commission President Ursula von der Leyen , visited two months later the Norwegian natural gas field of Troll, which provides 10% of the continent’s supplies.
Europe’s energy czar, Kadri Simson, has also visited Norway twice in the past two years. Speaking at an event in the Norwegian capital in March, Simson told a room full of the country’s oil and gas elite that “the EU continues to rely on Norway as a partner for conventional sources,” and expressed gratitude for its assistance during the energy crisis. crisis.
With Norwegian gas prices higher than those of Russia, the reduction in Russian exports has sparked controversy over whether Norway benefits at Europe’s expense. But criticism has eased as governments and traders have accepted the new market conditions. The non-EU country has never shied away from its emphasis on gas – Norway has long advocated for gas to play a central role in the bloc’s green transition – and it is now finding more willing counterparts. At the end of April, German Chancellor Olaf Scholz thanked Norway for allowing his country to become independent of Russian gas “in just a few months” and hailed it as “the ideal partner” to secure gas supplies. Germany and Europe.
Norway’s new role as a gas supplier to Europe has been very profitable – gas exports hit a record 1.4 trillion crowns ($130 billion) in 2022 – but it has also cast a question mark over Norway’s green future. While the country has become a leader in initiatives such as the transition to electric vehicles, the recent increase in gas demand has had the effect of redirecting financial resources and talent towards the oil and gas sector. Organizations such as Greenpeace have expressed concern that Europe’s adoption of Norwegian gas could come at the expense of a broader green transition.
And for traders, going all-in on Equinor poses another set of problems.
Equinor’s growing importance in Europe was highlighted last summer, when the company announced that maintenance at some of its largest gas facilities was being expanded. In just a few minutes, gas prices increased by almost 20%.
The reaction was particularly intense as traders were mostly betting on a fall in prices. Sluggish demand and the fact that the region’s gas stocks would be full by the end of summer led them to believe that Europe had finally overcome the worst of the energy crisis. Unusually hot weather on the continent, which normally increases energy consumption, has amplified concerns.
The unplanned outages significantly reduced Norwegian exports for a few weeks and prompted trading desks across the continent to weigh more of the “Equinor maintenance effect” in their models. As the price of gas became even more dependent on company status, traders began paying closer attention to daily messages sent by another Norwegian company, Gassco AS, regarding changes to maintenance schedules across the country.
Within Equinor, there are “information barriers and procedures to ensure compliance with regulations so that all market participants can access sensitive market information at the same time”, a spokesperson for the company said. company, adding that Gassco acts as a “neutral and independent system operator”.
Traders were already on alert in the event of surprise outages. Until the end of 2021, Gazprom was essentially a reliable supplier – a key reason why gas prices have remained stable over the past decade. When outages suddenly started happening more frequently, prices spiked, triggering the energy crisis.
What no one knew at the time was that the reduction in gas flows was part of the preparation for Putin’s invasion of Ukraine. Around November, traders began to factor the loss of Russian supply into their pricing models.
Europe is doing much better than a year ago, but circumstances remain volatile. Any threat to fuel supplies can disrupt markets, which can have downstream effects: persistent price fluctuations in the natural gas market can encourage industrial companies to limit their fuel consumption and drive up prices. household bills. “Norway is expected to meet more of Europe’s gas needs this summer as its facilities recover from last year’s extensive maintenance,” BloombergNEF’s Nnenna Amobi wrote in a May 1 note. “But,” she added, “unforeseen outages could still occur.” reduce flows and raise prices.
At the same time, Norway’s natural gas supplies could reach a new record this year. Equinor is working to increase capacity and reduce bottlenecks by streamlining maintenance work. The country’s government mantra – often repeated by Energy Minister Terje Aasland – is that Norway will be a “long-term, stable energy supplier” for decades to come.
It remains to be seen whether this will come to fruition. With the arrival of a new wave of LNG from the United States and Qatar in the coming years, “the importance of gas from Equinor and Norway to Europe will eventually decline”, said Christopher Kuplent, head of European operations at Bank of America Corp. energy research, noting that Norway “will struggle to organically increase its gas production and therefore export much more.” The new projects, he added, “will make, at least on paper, a little more comfortable for the European gas consumer to negotiate lower prices”.
Additionally, Equinor’s Rummelhoff said, a recent increase in volumes of liquefied natural gas imported into Europe has already helped “normalize the market.”
For now, the focus within Equinor is on ensuring things run as smoothly as possible. “Do we feel under pressure? We have always thought that,” remarked Kjetil Hove, the company’s production manager in Norway.
–With help from Petra Sorge, Ewa Krukowska, John Ainger, Anna Shiryaevskaya and Olga Tanas.
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