Gas problem for Norway and Russia
Lower prices on natural gas mean lower budget revenues for both Norway and Russia. It could also cast shadows over planned new field projects, including in the Barents Sea.
The quick drop in international prices on natural gas has become a serious challenge for the two gas-producing countries. According to a new report from Econ Poiry, Norway’s gas revenues are dropping “dramatically”, which means that serious cuts eventually will have to be made in the country’s national budget.
According to NRK, budget cuts are underway already in 2011.
At the same time, Norway is in danger of running out of available hydrocarbon resources. The country’s oil production has dropped 40 percent since the peak in 2001 and also the finding of gas reserves have stagnated.
As reported earlier this week, oil company Shell’s dissappointing drilling results in the promising “Gro” field in the Norwegian Sea has brought new uncertainty to the industry. Following the negative announcement on “Gro”, Norwegian Minister of Oil and Energy Terje Riis-Johansen even said that Norway might eventually be unable to meet its long-term gas delivery agreements.
-If we do not make significant findings in the time ahead, it will be problematic to deliver as much gas to Europe as we would like, Minister Riis-Johansen told Teknisk Ukeblad.
For Russia, the changing situation in the gas market is of no less concern. Gazprom has lost a serious part of its share in the European gas market to alternative suppliers. According to a survey from the Rossiiskaya Gazeta, the company in 2009 sold less gas to all of its client countries with the exception of Poland and the UK.
Furthermore, pressure is now increasing on export monopolist Gazprom to change delivery agreements. The Russian gas is more expensive than competing gas both from Norway and LNG. According to Rossiiskaya Gazeta, Gazprom fully understands the graveness of the situation and is “intensively looking for alternative and mutually favorable alternatives”.
In addition, Gazprom is stepping up its focus on alternative markets. The countries in Southeast Asia are increasingly seen as potential buyers of the Russian gas and the company’s Eastern Programme outlines major deliveries to China.
The lower prices and the rapid shifts in the gas market might also influence both Norway’s and Russia’s plans for new field development. Among the projects with an uncertain future is the huge Shtokman field in the Barents Sea. The project, which is to be developed by Gazprom along with Total and Statoil, has unprecedented technological challenges and includes huge investments. With the current uncertainties in the gas market, the project could face new postponements.
