The business area is in charge of roughly 80% of all Norwegian gas exports. This also includes marketing of the gas from the State’s Direct Financial Interest (SDFI).
According to the International Energy Agency (IEA), the estimated annual growth in global gas consumption in the period 2005-2030 is 2.1%. In the same period growth in OECD Europe is expected to be at 1.4%. This translates into a European demand for gas in 2030 of approximately 770 bcm - or approximately six times Norway’s current export capacity.
Increasing need in Europe
From around 2010, it is expected that Europe will need additional supplies of piped gas and/or LNG in order to cover demand. High regularity and the geographical location makes NCS gas attractive in the European market. We therefore expect that the demand for gas from Norway will continue to increase.
NG’s business is conducted from three locations in Norway (Stavanger, Kårstø and Kollsnes) and from offices in Belgium, the UK, Germany, Turkey, Singapore, Azerbaijan, China and the USA.
In 2007, we sold 34.8 bcm of natural gas from the NCS on our own behalf, in addition to approximately 31.2 bcm NCS gas on behalf of the Norwegian State. From our international positions (mainly Azerbaijan and the US), we sold 2.2 bcm of gas in 2007, 0.8 bcm of which was entitlement gas.
Sales and marketing of gas
StatoilHydro markets and sells its gas together with the Norwegian State’s natural gas. This gives us an approximately 15% European market share and makes us the second largest gas supplier in Europe and the sixth largest supplier in the world. In addition, StatoilHydro markets gas sourced from producing areas other than the NCS.
We believe that Norwegian natural gas exports will remain highly competitive because of reliability, access to the transportation infrastructure and proximity to the European market. In addition, natural gas is an attractive source of energy from the perspective of climate change since it emits far less greenhouse gases than coal and oil.
The major export markets for NCS gas are Germany, France, the United Kingdom, Belgium, Italy, the Netherlands and Spain. Our main customers consist of large national or regional gas companies. The gas is mainly sold through long-term take-or-pay contracts.
In the United Kingdom, we market our gas to large industrial customers, power generators and wholesalers, in addition to participating in the UK spot market. NG also has an end user sales business based in Belgium, serving large customers in Belgium, the Netherlands and France. Our group-wide gas trading activity is mainly focused around the UK gas market, which is a significant market in terms of size and the most liberalised market in Europe.
We are also increasingly taking part in other liquid trading points such as the TTF (Title Transfer Facility) in the Netherlands and at Zeebrugge Hub in Belgium.
Processing and new infrastructure
To transport Norwegian natural gas to European customers, Norwegian gas producers have built an extensive gas pipeline system, connecting gas fields to gas processing plants on the Norwegian mainland and to receiving terminals in Europe.
A new dry gas pipeline, Langeled, from the Ormen Lange field via Sleipner to Easington in the UK, was put into operation in October 2007. At plateau levels the field is expected to provide StatoilHydro with more than 6 billion standard cubic meters of gas per year. It is anticipated that Ormen Lange will account for approximately 20% of Norwegian gas export in 2010. The Langeled pipeline is part of the Gassled system.
In October 2007 the strategically important Tampen Link pipeline was officially opened. The Tampen Link opens a new corridor to the UK gas market. Tampen Link ties the Statfjord field into Britain’s existing Far North Liquids and Associated Gas System (Flags), which runs to St. Fergus in Scotland.
The pipeline increases StatoilHydro’s ability to export gas from its continental shelf with a maximum committable capacity of 26.5 million standard cubic metres per day. On completion the ownership of Tampen Link was merged into Gassled.
In November 2007 the Norwegian Government announced that it would not support plans to increase gas production from the Troll field, due to considerations of the possible negative impact on future liquids production. As a consequence, plans for an additional gas export pipeline from Norway were cancelled.
We are now working on a number of projects to realise the full potential of the NCS that will all contribute to strengthening our position as an important and reliable long-term supplier of natural gas in Europe.
StatoilHydro has technical operating responsibility for Europe’s largest gas processing plant of its kind at Kårstø, north of Stavanger, and at the Kollsnes plant outside Bergen.
Gassco is the operator of both of these processing plants. In order to meet technical requirements and future needs, 2007 has been a planning year for a large modification and ugrading plan at Kårstø, with start-up in 2008. The project’s framework investment is estimated at around NOK 6.5 billion with plans call for completion in 2012.
International growth
StatoilHydro has a 25.5% interest in the Shah Deniz field in Azerbaijan and is commercial operator responsible for gas transportation and all gas sales activities. Turkey is the main market for gas from Stage 1 of the Shah Deniz development, and in addition Georgia and Azerbaijan are part of the gas sales portfolio.
The gas is transported to customers through the South Caucasus Pipeline (SCP) running from Azerbaijan via Georgia to the Georgian/Turkish border. Shah Deniz Stage 1 production and the related gas transport in SCP were ramped up throughout 2007.
The Stage 2 development of Shah Deniz is currently being progressed toward a planned start-up in the end of 2013. Field reserves support a significant Stage 2 development and is likely to be on a similar or larger scale as the Stage 1 (plateau production of around 8.6 bcm).
Key activities for NG in this respect are related to the commercialisation of Stage 2 through the organisation, planning and conduct of gas market/transport evaluations and negotiations with counterparties in the Caspian region, Turkey and the European Union.
In February 2008, StatoilHydro signed an agreement with the Swiss company EGL to establish a joint venture to develop, build and operate the Trans Adriatic Pipeline (TAP) from Greece through Albania to Italy. A final investment decision is to be made in the second half of 2009.
This potential pipeline, expected to be operational from 2011 at the earliest, will open a new corridor and market outlet for natural gas from the Caspian Sea into Europe. We have chosen to join the TAP project as part of our effort to offer an attractive export route for the Shah Deniz gas to the European market.
A full member of the LNG family
On 20 October 2007, the first vessel with a cargo of liquefied natural gas from the Snøhvit field left the port at Melkøya. For the first time StatoilHydro is supplying gas from the Norwegian continental shelf in a cooled state by ship.
LNG gives us increased flexibility in terms of marketing gas globally. The plant at Melkøya is the first LNG production facility in Europe and it will be a key component in StatoilHydro’s focus on LNG, which is the fastest growing gas market in the world.
The LNG plant has faced operational challenges and there are still uncertainties related to the timing of regular and stable operations. Our commitments to our customers Iberdrola and SNG commenced on 1 October 2006.
To meet our obligations, we have put into effect mitigation activities such as purchasing replacement LNG, and shipping gas by pipeline.
