In Oil & Companies News 17/04/2015
Norwegian gas is likely to be price competitive enough to weather an influx of cheaper Russian gas expected into its European market this summer, a senior Statoil official said.
Europe’s biggest gas producer does not expect to see Russia, the continent’s biggest supplier, taking away its market share despite increasingly cheap oil-linked gas becoming available from the east, said Rune Bjornson, Statoil’s senior vice-president for marketing and trading.
Supplies from Russian pipeline export monopoly Gazprom are estimated by analysts to rise to record levels this summer.
Russian long-term gas supply deals with European utilities are linked to oil prices with a lag of six-to-nine months, meaning that the collapse in oil prices will only start to fully feed into gas contracts this summer, making Russian gas cheaper.
Statoil sells much more of its gas priced against freely traded European gas hubs, raising expectations that Russian volumes could increase penetration into the market.
Bjornson said that spot prices on Europe’s freely traded hubs will fall in response to any increase in Russian volumes, potentially lining up with oil-indexed levels and eroding Russia’s competitive advantage.
“I don’t necessarily think that is going to be the case because the Russian gas will also find its way into the market if there is a margin in there…simply because the oil-linkage takes it down below the (spot) market, the market is likely to follow suit in one way or another,” Bjornson said.
“We expect flows to remain stable this summer,” he said.
Caps on output from the Dutch Groningen gas field and gas exports from Western Europe to Ukraine left Western Europe’s gas storage sites only a quarter full at the end of March, below last year levels, which is expected to keep demand high this summer.
Nor does Bjornson expect Statoil’s share to be squeezed by a forecast rise in cheaper liquefied natural gas (LNG) shipments landing at northwest European terminals this summer, as demand in the world’s top consuming market Asia slows.
“From a competitive point of view I think we are well placed,” he said.