Crisis Averted on Norwegian Continental Shelf

Crisis Averted on Norwegian Continental Shelf
A crisis was averted on the Norwegian continental shelf this week.

A crisis was averted on the Norwegian continental shelf this week thanks to government intervention, a new market note from Rystad Energy Analyst Lu Ming Pang has pointed out.

“Norway’s government intervened late on 5 July to resolve a strike led by the Lederne union that would have caused widespread disruption to several gas fields and pipelines, leading to a 56 percent drop in Norwegian gas exports if it was not averted,” Pang said in the note, which was sent to Rigzone.

“The industrial action was led by dissatisfied operators at a few Norwegian gas fields and could have resulted in knock-on impacts by the end of the week to major gas pipelines such as the Zeepipe and Langeled, as well as to major gas fields such as Troll and Ormen Lange,” Pang added in the note.

“Following the intervention by the government, workers are now expected to return to their posts as quickly as possible, while a settlement between oil companies and Norway’s Lederne union is expected to conclude at a later date,” Pang continued.

In the note, Pang highlighted that the Lederne union, which has over 1,300 members, called the strike as the cost of inflation outpaced proposed revised salaries. Had the situation not been resolved, the Dutch TTF gas price would have been sent back close to, or even exceeded, its all-time high of $65 per MMBtu, reached in March, Pang warned.

“The loss of gas supply from Norwegian fields would have been a triple whammy for Europe, within just weeks of losing Russian flows and supplies from Freeport LNG in the U.S.,” Pang stated in the note.

“This would have further disrupted European Union gas supply and increased gas prices significantly from the current level of almost 10 times above the historical normal,” Pang added.

“Given the swift and timely response by the Norwegian government, the message is clear that there should not be any doubts on the security of Norwegian gas supplies, and that now more than ever, the EU and allies must stay united to avert any future challenges that may come their way,” Pang continued.

Pang went on to note that the government’s decision has protected the North Sea’s reputation as “one of the most stable oil and gas investment locations globally”.

Strike Action

The strike was expected to take place in several tranches, with the first wave starting on July 5 with affected fields halting production, followed by a second wave on July 6 and third wave on July 9 if no resolution could be found, Pang outlined.

“Had the dispute not been resolved by 6 July, then production loss would potentially have been as high as 46 MMcmd, or about 20 percent of usual Norwegian gas exports,” Pang revealed, adding that, in revenue terms, this is equivalent to just under $99 million.

“By 9 July, after the third tranche, the loss in production would have been as high as 200 MMcmd or about 60 percent of Norwegian gas exports, due to high interconnectivity with major pipelines and other major gas fields,” Pang said in the note.

“The Zeepipe (Norway-Belgium) pipeline), Langeled (Norway-UK) pipeline), and major gas fields such as the Troll and Ormen Lange were expected to be among the other infrastructure that experience disruption,” Pang added.

“In revenue terms, this is equivalent to roughly NOK 2.5 billion [$247 million], assuming a gas price of $30 per thousand cubic feet and oil price of $103 per barrel, though we understand that some contracts are also linked to NBP and Brent prices,” Pang continued.

EU Challenges

In a separate market note sent to Rigzone on June 30, Rystad Analyst Vladimir Petrov noted that, besides prospects of even lower gas flows from Russia, Europe is also encountering increasing competition for LNG against Asian markets with soaring demand.

“Furthermore, in accordance with the National Grid emergency plan, the UK could cut-off interconnection gas pipelines to continental Europe in case the energy crisis intensifies,” Petrov stated in the note, adding that a UK emergency plan stress test is scheduled for September.

In a market note sent to Rigzone on June 29, Pang said gas supplies to Europe were holding firm following the recent double whammy of the knocking out of some flows from a key Russian pipeline and a blast at a U.S. liquefied natural gas plant.

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