Norway 'Will Be Competitive at Lower Prices': Statoil

Norwegian gas will be competitive within Europe at even lower prices than today's, Statoil's senior vice president for marketing and trade Tor Martin Anfinnsen told the Flame Conference in Amsterdam May 10. "Norwegian gas is a price-taker, we do not have a price or a volume strategy," he said.

Norway produces for export some 105bn m³/yr, which is sustainable for another decade, given more investment upstream bringing new fields on stream relating to the Polarled line that brings gas to Nyhamna. Norway needs to keep its prices low to ensure it sells its output in the teeth of this new source of competition, which means going below the NBP price.

This summer has seen the start of deliveries of LNG from Sabine Pass, Louisiana, triggering a price war that could hit Norway's revenues. So far, only one out of eight cargoes has so far come to Europe, according to operator Cheniere Energy. The project was based on LNG produced from shale gas with low production costs, so that in some regions of the northeast US it trades at a discount to the Henry Hub index. The second train is now commissioning and due onstream around August, while three more are being built and will come on stream in succession, roughly at 6-month intervals.

Some analysts regard liquefaction and regasification capacity as sunk costs, borne by the capacity holder, with just the variable price of gas in the US being enough to decide whether the shipper sends the gas to Europe or Asia or leaves it in the ground. With European hub prices for near-term delivery at around $4/mn Btu and US Henry Hub gas at around half that, there is room for further falls in the gas price at the UK NBP.

Russian export monopoly Gazprom is also looking to defend or expand its market share in Europe as its market share is falling in Russia. Not only is demand not growing but independent producers such as Rosneft, Novatek, Lukoil have taken market share from Gazprom at home, BP's analyst in Russia, Vladimir Drebentsov, told Flame. "It is becoming weaker and weaker," he said, facing "discriminatory taxation and losing court cases." But abroad, he said, it could compete with gas prices below $3/mn Btu, given production costs of $0.80/mn Btu and $2/mn Btu transportation, and assuming no export duty.

Export Monopoly

Russian authorities have agreed to lift Gazprom's export monopoly to allow independent producers to sell gas to Europe, Drebentsov also said. But he told NGE that nothing had been formally agreed. A senior executive from Novatek declined to comment on that, nor did others present at the conference think that anything decisive had actually happened. BP is a shareholder in Rosneft, which has been lobbying for the right to export gas. It bought another independent gas producer, Itera, some years ago to increase its gas production in western Siberia. Demand within Russia is stagnant, reflecting the weak economy.

At the moment, Novatek is selling gas through its European trading arm in Zug, Switzerland, presumably buying and selling gas outside Russia's borders. The discussions seem to have stuck at the mechanism that might be used to bypass the monopoly: the only export pipes are owned by state-controlled Gazprom, whose monopoly is enshrined in law, and exporters might be forced to sell their export gas to Gazprom within Russia and buy it back again somewhere beyond Russia's borders, including a commission.

William Powell