Norway becomes major gas exporter

(Nov. 15, 2001) Norway plays an increasingly important role as a gas exporter. Including the latest contract for gas sales to Poland, Norway has sold or is committed to selling almost 80 billion cubic meters of gas from 2005.

In a few years, when the gas reserves from the Ormen Lange field can probably be added to the total figure, Norway will be able to supply 110 cubic meters of gas per year, worth an annual NOK 14 billion (€1.7 billion) based on today's gas prices.

In addition to the existing pipelines from the Norwegian sector of the North Sea to the European continent, new pipelines have been laid westwards to the UK and eastwards to Poland. In the future, North Sea gas will also be used more and more in the domestic Norwegian market. Powerful forces are working to lay a pipeline to the southeastern region of the country, and important research is being carried out on ways to use the gas to fuel emission-free power stations.

Eastward-bound
To justify the costs involved in laying a pipeline from the North Sea to Poland, more Norwegian gas needs to be sold through pipeline offshoots to Scandinavia. The gas sales agreement signed with Poland is not sufficient.

Following a series of lengthy negotiations the Norwegian Gas Negotiation Commission and the state-owned Polish company, POGC, signed an agreement in September for supplies of Norwegian natural gas to Poland. Deliveries are scheduled to start in 2008 and will last for 16 years. The total value of the contract is around NOK 100 billion (€12.4 billion).

When deliveries reach their peak, Norway will supply Poland with 5 billion cubic meters of gas each year, with Norsk Hydro providing 15 per cent of the total. The agreement still has to be approved by POGC's board of directors and the Norwegian authorities.

However, according to Olav Skalmeraas, who heads Norsk Hydro's gas sales business, 5 billion cubic meters per year is not enough. The Polish agreement assumes the sale of gas to other Scandinavian markets. This is necessary to make the Østerled pipeline, which will have to be built from the North Sea to Poland, a viable economic proposition. As previously mentioned, the pipeline Østerled will have a planned annual capacity of 10 billion cubic meters.

The most probable market for gas from the Østerled pipeline is the Grenland region in Telemark on the southwestern coast of the Oslo fjord. This area could take around 2 billion cubic meters of gas, which will be used for industrial purposes and heating. Other potentially important markets are located in southeastern Norway and Sweden.

The prospects for gas sales to Sweden have been discussed at regular intervals for almost 10 years, without any contracts being signed. But Skalmeraas thinks that this time an agreement may be reached.

"Talks we have had with Swedish companies give grounds for optimism. Interest in gas-fired power stations is growing, as the balance between electricity supply and demand becomes tighter. In addition, Denmark has started to show an interest in Norwegian gas," says Skalmeraas, who adds that the Swedish market is not crucial to Norway's gas deliveries to Poland. However, they could play an important role in reducing the pipeline's costs.

Transportation a key issue
According to Skalmeraas, the best way of transporting Norwegian gas to Poland is a pipeline running from the Norwegian continental shelf, across the Skagerak channel, then overland through southern Sweden to Neichorze in Poland.

However, the Danish oil and natural gas company (DONG) has signed its own agreement for the sale of around two billion cubic metres of gas to Poland, and aims to build up Denmark as a gas distribution center. These plans include the construction of a gas pipeline from Denmark to Poland. The Danish solution does not satisfy Norwegian interests, since it means that the gas will not reach southeastern Norway or western Sweden.

"But what is worse," Skalmeraas points out, "the pipeline from Denmark to Poland will open a new route for imports of Russian gas. In other words, we would be getting Russian gas piped into our own backyard."

At the same time, various interest groups are working to find a joint solution. Norsk Hydro, VNG, Sydkraft and Energi E2 are members of Baltic Gas Interconnector, which together with another group, Baltic Pipe, is looking at the possibility of finding a joint transport solution. Baltic Pipe currently comprises DONG and POGC.

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