Norway May Boost Gas Output as Russia, U.S. LNG Supply Increases

  • Troll field permit increased 10% to 33 bcm for 2016 gas year
  • Russia is increasing flows to Europe; U.S. set to ship cargoes

Norway will allow increased production from its biggest natural gas field as Europe’s second-largest supplier of the fuel prepares for increased competition with Russia and the U.S.

The production permit for Troll was increased 10 percent for the gas year starting Oct. 1, according to field operator Statoil ASA. Norway last year installed two new compressors at the North Sea field, ending technical issues that previously limited capacity and helping supply record volumes to Europe.

The higher limit may help Norway to catch up with Russia, the top European supplier which said it would this year exceed its 2013 export record. The two nations can send fuel to Europe at a lower cost than the U.S., which in February began shipments by tanker from the Gulf of Mexico coast. With European gas prices near their lowest since 2009 moving closer to those in the U.S., American shale gas has favored markets in Brazil and India.

“This is exactly the things Norway was going to do to defend market share,” Thierry Bros, an analyst at Societe Generale SA in Paris, said by e-mail, referring to the Troll permit. “Prices should go further down.”

Flexible Supply

Troll’s production permit has been increased to 33 billion cubic meters (1.2 trillion cubic feet) for the 2016 gas year, or almost as much as France’s annual consumption. Statoil spokesman Sverre Olden Mala declined to comment, saying the decision was made by the Energy Ministry. The ministry didn’t immediately reply to an e-mail and telephone call.

While the permits set upper limits, there are no minimum volumes and operators have flexibility to make up for lower production at a later point, Jan Bygdevoll, a senior reservoir engineer at the Norwegian Petroleum Directorate, said in an interview last August.

Gas for next-month delivery in the U.K. has dropped 44 percent over the past year, to 26.48 pence a therm by 1:11 p.m. Tuesday on the ICE Futures Europe exchange in London. That’s $3.77 per million British thermal units and compares with $2.011 per million Btu on the U.S. Henry Hub. The delivered price for U.S. LNG to a global destination would include fees and transportation costs.

Storage Levels

European gas prices are pressured after a mild winter left more gas in storage than last year and as flows from Norway and Russia by pipelines and from Qatar by tanker show no signs of respite.

Gazprom PJSC, Russia’s pipeline gas export monopoly, said last week shipments to Europe and Turkey, its main market by revenue, rose 29 percent to 44.4 billion cubic meters in the first quarter, with the biggest growth in supplies to the U.K. and the Netherlands.

“With the global LNG market increasing, traditional producers must be wearily looking over their shoulder, especially given the expected wave of U.S. LNG expected to hit the U.K. and European shores over the coming months,” Nick Campbell, energy risk manager at Inspired Energy Solutions, said by e-mail. “It would be worthwhile taking a few years’ worth of pricing pain to force U.S. LNG to defer to other markets or remain at home.”

Demand response from the European markets may have also supported Norway’s decision, Campbell said. More gas is being used in power plants as the fuel replaces coal in electricity generation in the U.K. amid lower prices, according to National Grid Plc data.

The extra Troll production volume will be at the upper end of how much supply Norway could add, said Trevor Sikorski, head of natural gas, coal, and carbon at Energy Aspects Ltd. That volume probably won’t impact the volumes of LNG in Europe this year, he said.

“2017 will be when the really large volumes of LNG are expected to show up,” he said. “That’s when it will really test the nerve of Norwegian producers.”

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