U.K. Faces Higher Gas Prices If Norway Workers Call Strike

  • Employers, union meet for last-ditch wage talks on Thursday
  • Possible strike would cut off gas exports from Nyhamna to U.K.

U.K. natural gas prices could rise and market volatility worsen if Norwegian oil companies fail to find a wage agreement, triggering a walk-out that would cut off about 20 percent of Britain’s supply.

A strike, which would start Friday if last-minute talks fail, would shut down exports from the Nyhamna facility, which processes production from the Ormen Lange field in the Norwegian Sea, Royal Dutch Shell Plc spokeswoman Kitty Eide said in an e-mail. Production of liquefied natural gas at Statoil ASA’s Hammerfest plant would probably halt as well, spokeswoman Elin Isaksen said in a separate e-mail.

A strike would be the first in Norway’s oil and gas industry to affect output from western Europe’s biggest producing country since 2012. The risk comes against a backdrop of historically low prices and high market volatility.

“Since the start of October the markets have been quite a roller-coaster ride,” said Michael Farbaky, a gas trader at Danske Commodities in Aarhus, Denmark. “There is a lot of volatility and the strikes would only add to that. Furthermore the market is waiting for any bullish factors so it be would put upward pressure on the prices.”

Gas for immediate delivery in the U.K. has rallied this week amid forecasts for colder weather and a lack of liquefied natural gas imports, adding 49 percent over the past three days. The aggressive moves in the value of the contract are unusual, with 30-day volatility at the highest in five years.

The Norwegian Oil and Gas Association, which represents employers, started talks with the SAFE union at 10 a.m. in Oslo as planned, the union said in a statement. The mandatory, state-backed mediation is a last-ditch effort to avoid a strike by 338 workers. The talks cover a wage agreement for workers at onshore installations in Norway, not on offshore platforms.

Mediation since 2012 has more often than not produced an agreement, usually after talks have gone past a midnight deadline. Exceptions include a strike by more than 300 workers at oil-service companies that is currently affecting drilling operations, though no oil and gas output.

The strike would come as the U.K.’s supply options have already tightened with no LNG imports since Sept. 26 and no confirmed arrivals over the next few days, according to port and ship-tracking data on Bloomberg.

Ormen Lange produced about 49 million cubic meters of gas a day in July, according to the latest figures available on the website of the Norwegian Petroleum Directorate. That’s equal to 23 percent of forecast U.K. gas demand on Thursday.

Norwegian LNG

Average flows through the Langeled pipeline from Nyhamna to Easington in the U.K. were about 40 million cubic meters a day over the past year, with peaks of more than 70 million cubic meters. The Melkoya facility, also known as Hammerfest LNG, produced 4.23 million metric tons last year, 53 percent of which was shipped to Europe and 30 percent to South America, according to the International Gas Union, a lobby group.

A strike would also affect Exxon Mobil Corp.’s Slagen refinery. The plant is undergoing maintenance that will continue for a “few weeks,” spokesman Tore Revaa said. Resumption of normal operations could be delayed in case of a strike, SAFE’s first deputy leader Roy Aleksandersen said earlier this week.

The Slagen refinery’s maintenance may be extended if the strike goes ahead, the Norwegian Oil and Gas Association said Thursday.

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