Statoil Scraps $324 Million Norwegian Sea Pipeline on Costs

Statoil ASA (STL), Norway’s biggest energy company, canceled plans to build a pipeline tying the Kristin natural-gas field to the planned $4 billion Polarled tube in the Norwegian Sea because of costs and volume uncertainties.

Scrapping the 2 billion-kroner ($324 million) project won’t affect the Polarled pipeline, the Stavanger-based company said in a statement today. Kristin gas-export project represented less than 5 percent of volumes planned to pass through Polarled, it said. Costs included modifications to the Kristin platform, Statoil spokesman Morten Eek said in a phone interview.

“With the deteriorating project economics, we did not see grounds to continue the KGEP development,” Statoil’s Polarled development-project director Haakon Ivarjord said in the statement.

Statoil, which operates more than 70 percent of Norway’s oil and gas production, has said it will be more selective on future investments amid higher costs and falling profitability throughout the industry. The 67 percent state-owned company last year delayed its Johan Castberg oil project in Norway’s Barents Sea and the Bressay heavy-oil development in the U.K.

The 30-kilometer (19-mile) KGEP was supposed to connect the new 480-kilometer Polarled pipeline, linking the Aasta Hansteen field to the Nyhamna terminal, with the existing Aasgard transportation infrastructure. The possibility of linking the Kristin field to Polarled “is maintained as necessary connection points continue to be part of the project,” Statoil said today.

Deepest Pipelines

Polarled, which will become the world’s deepest offshore gas pipeline at as low as 1,300 meters (4,270 feet) below sea level, was described by Statoil a year ago as opening new opportunities for gas exports from the Norwegian Sea by tying in existing and future discoveries. Producers including Statoil, Royal Dutch Shell Plc. (RDSA) and ConocoPhillips will invest 25 billion kroner in the pipeline, which is due to start operating by the end of 2016.

Owners in Gassled, Norway’s gas-pipeline network, have said they would refuse to buy stakes in Polarled from the oil companies building it after the country’s new government maintained plans to cut the tariffs operators can charge for gas transportation by as much as 90 percent.

The termination of the Kristin pipeline wasn’t related to reduced divestment opportunities for the partners, which also include Petoro AS and GDF Suez (GSZ), Statoil’s Eek said. He declined to provide further details on the company’s volume estimates for the Kristin pipe.

The cancellation led to the partial termination of Kongsberg Gruppen ASA’s 380 million-krone delivery contract for the Polarled pipeline. The cancellation had a negative impact of about 200 million kroner, Kongsberg said in a statement today.

To contact the reporter on this story: Mikael Holter in Oslo at mholter2@bloomberg.net

To contact the editor responsible for this story: Will Kennedy at wkennedy3@bloomberg.net

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