Norway’s gas lifeline for Europe is the smart move

Oil and gas company Statoil gas processing and CO2 removal platform Sleipner T is pictured offshore near Stavanger, Norway February 11, 2016. REUTERS/Nerijus Adomaitis/File Photo

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MILAN, Sept 9 (Reuters Breakingviews) – Cash-rich neighbor Norway could play a role in solving Europe’s gas problems. Prime Minister Jonas Gahr Store hinted on Wednesday that the Scandinavian nation, a staunch NATO ally and member of the European Free Trade Association, could be open to reductions in fuel prices for nations Europeans in need of energy. It’s the smart gesture, since the size of the reduction is less important than the gesture.

Drastic Russian cuts to gas supplies to Europe this year have made Norway the European Union’s main source of fuel. Before the war in Ukraine, the Scandinavian nation covered only 20% of the 27-nation bloc’s gas demand, less than Russia’s 40%. After ramping up production, it is expected to deliver nearly 90 billion cubic meters of gas to the EU this year, or nearly 25% of the bloc’s demand, according to research firm Rystad Energy. That’s more than the 20% Russia will likely supply. For Britain, Norwegian gas imports could increase from 41% of total demand in 2021 to almost 50% in 2022.

As a major producer of fossil fuels, Norway has made a lot of money from soaring fossil fuel prices. He expects oil revenues to triple to a record 933 billion Norwegian kroner (93.7 billion euros) this year. Net profit at energy giant Equinor (EQNR.OL) rose 2.5 times to $6.8 billion year-on-year in the second quarter of 2022. Oslo also sits atop a sovereign wealth fund of $1.1 trillion.

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With so much cash available, a nation of just 5 million people has room to give slack to its struggling allies. Offering discounts in a seller’s market makes little sense financially, but a severe gas crisis would tip the EU into a recession. It would hurt trade with Oslo’s biggest trading partner, to which Norway exported 75 billion euros worth of goods in 2021, around 60% of the total. More than 90% of Norwegian gas goes to the EU and Great Britain each year.

Being proactive might be smart. EU ministers are meeting on Friday to discuss imposing a cap on Russian gas imports to cut costs. If Oslo offered a temporary and modest discount on existing bilateral contracts, it would avoid the impression of being bullied. But it would also show he recognizes the need for European solidarity at a time when one-month gas contracts are trading at 210 euros per megawatt-hour, five times summer 2021 levels.

Easing Europe’s economic woes will eventually produce its own dividends.

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Norway is ready to discuss possible long-term gas deals and price caps with European partners, the country’s prime minister told the Financial Times in an article published on September 7.

“I fully understand that Europe is now having a deep debate about how energy markets work, how they can ensure more affordable prices for citizens, families, industries, how this shortage of gas after the aggression of (Russian President Vladimir) Putin can be managed,” Jonas Gahr Store, Prime Minister of Norway, said. “Norway does not close the doors to such a discussion.”

Norway is expected to export nearly 90 billion cubic meters (bcm) of gas to the European Union, nearly 25% of its projected gas needs this year, according to forecasts by energy consultancy Rystad. Exports to Great Britain could reach 36 billion m3, or nearly 50% of the country’s total gas demand.

Norwegian government revenue from the oil industry is expected to reach a record 933 billion Norwegian kroner (93 billion euros) this year, 645 billion kroner more than last year, according to government statistics.

Equinor reported net income of $6.8 billion in the second quarter of 2022, compared with just $1.9 billion in the same period a year earlier.

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Editing by George Hay, Streisand Neto and Oliver Taslic

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Mary I. Bruner