When Thomas Malthus visited remote Norway in the late 1790s, he saw a country living on the fringes of human existence. With the sun lasting a few hours in winter, the English economist saw a harsh future in which people were doomed to live on a small plot of land and the sustenance they could get from the river or the sea. Malthus – who prophesied a future in which human beings would multiply faster than the resources needed to sustain them and would therefore starve – would be amazed today to see Europe looking hopefully to the Scandinavian waters, which since the 1970s Years of the last century were discovered rich in gas and oil to fill part of the energy gap that Russia will leave on the continent.
“Norwegian gas will make an important contribution to Europe’s energy security,” says Nicolas Mazzucchi, analyst at the Foundation for Strategic Research (FRS), ret think tank French. According to government forecasts, gas exports to western Europe will increase by 8% this year to 122 billion cubic meters, beating the 2017 record. “Companies are producing at their maximum capacity,” assured Terje Aasland, the country’s oil and energy minister, the second largest gas supplier in the Old Continent (including the UK), earlier last month. If Norway met 20% of European demand in 2021, it will meet 25% by the end of 2022, according to estimates by S&P Global Commodity analyst James Huckstepp. For example, if total demand for gas in Europe falls by about 10% (to 450 billion cubic meters per year. Equivalent to one billion cubic meters) and Norwegian exports hit a record high, the country could benefit, according to Ana Maria’s calculations Jaller-Makarewicz, an analyst at the Institute for Energy Economics and Financial Analysis (IEEFA), is as much as 27%.
It will be other global producers that will fill most of the hole. “Europe will become more and more dependent on the US and Qatar, who want to significantly increase their deliveries to Europe over the next five years,” says Huckstepp. “Norway will not bail out the EU or avoid a supply crisis if Russia’s taps are shut off,” Jaller-Makarewicz says enthusiastically.
The Norwegian giant Equinor, on the other hand, has already thrown all the meat on the grill. The company, in which the government has a 67% stake, has approved a production increase of at least 1.4 billion cubic meters in two of its main fields: Oseberg and Heidrun. This corresponds to the needs of around 1.4 million European households for one year. Gas production, now the most profitable business, could also be ramped up at the Troll field, the largest gas well in the North Sea, should others suffer disruptions. “In this extremely challenging situation, we are doing everything we can to meet deliveries,” said Irene Rummelhoff, Executive Vice President of marketing, mid-stream and liquidation of the energy company in a communication.
Equinor – which has gone from millionaire losses in 2020 to millionaire gains in 2021 due to the surge in energy prices – and various partners have announced the development of a gas production project (called Halt East) in which they will see initial production in 2025 and into the they will invest around 935 million dollars. “Norway feels the pressure to increase development plans for new projects,” emphasizes the IEEFA expert. “But some of these projects will start production within 10 years or more and there is a risk that gas demand will increase [fuera de su mercado] Decrease due to increased renewable energies or energy efficiency.” Companies do not want to be left behind. Last month, year-end investment forecasts rose 5% to $17,570 million, according to a survey by the National Bureau of Statistics. And as the Kremlin invasion of Ukraine progresses and the West seeks to sever all sorts of energy ties with Russia, fossil fuel rents are skyrocketing.
According to estimates by Nordea Bank, the Norwegian state could receive around 117 billion euros in 2022 from oil and gas sales alone. Last year, the government expected these revenues to amount to just 27 billion euros. “The difference is of course enormous,” emphasize the experts at the finance house. A large part of these funds goes to the sovereign wealth fund, which is worth $1.3 trillion, or €211,000 per citizen (5.3 million people). “There are times when it’s not fun to make money and this is one of them given the situation,” Aasland said in an interview on local television last month. “Norway is fortunate to have a hydrocarbon reserve that has enabled it to provide a strong income for its population,” says Diego Rodríguez, professor of economics at UCM and associate researcher at Fedea. The country, which depends on renewable energy (mainly hydropower) for its internal energy, is a small player in the hydrocarbon market: with oil production covering about 2% of world needs and 3% of world gas needs.
However, as an exporter it is a relevant player: the third-largest exporter of natural gas in the world, behind only Russia and Qatar. This makes oil and gas the most important export products of its economy. Last year, Norwegian gas production was 113 bcm, covering about a quarter of the gas needs of the EU and the UK. The country pumps around four million barrels per day (the highest production in Western Europe), split almost equally between oil and natural gas, 95% of which is distributed via an extensive network of subsea gas pipelines, with terminals in Germany, Great Britain, France and Belgium. A new connection to Poland will be completed by the end of this year: a 900-kilometer pipeline with an annual capacity of 10 billion cubic meters of gas. With this, Warsaw hopes to reduce its dependence on Russian gas, which accounts for half of its consumption. “Norwegian gas will help contain the shock in the Baltic countries, which are heavily dependent on Russian supplies,” stresses Mazzucchi.
Norway’s LNG exports, which account for between 6% and 7% of total gas exports, will also be important in decoupling from Russia. A few weeks ago, Equinor resumed operations at its facility in the city of Hammerfest (in the north) after a 20-month hiatus. Around 6,500 million cubic meters per year could be extracted from there, which corresponds to the annual gas requirements of 6.5 million European households.