Norway Defends Market Share In Natural Gas

Norway is defending its strong position in Germany, Europe’s number one natural gas market, as competitive pressure increases from three giants in oil and gas.

For more than four decades, the Scandinavian country has been a major supplier to Germany with its natural gas market now valued at $21 billion, about 25 percent of the total market share. That’s now being to be seriously challenged by Russia, the U.S., and Qatar.

Germany is looking for ways to increase the number of natural gas fired power generation facilities. Gas is the cleanest of the fossil fuels, and Germany’s utilities are working to exit nuclear power and coal-fired plants. Solar and wind generation capacity has grown in Germany in recent years, but the country has faced intermittency problems because of this rapid growth.

Germany has been, for years, championing using clean energy to power its electricity and manufacturing plants, with the government applying pressure on German companies to make that transition. Natural gas is becoming a more viable clean energy source to hit some of its energy targets. Norway would like to retain its strong presence in meeting that growing demand.

Another ripe opportunity for Norway is that the Netherlands’ large Groningen gas field is gradually being shut down after earthquakes in the area have caused damage to buildings in that area. The Netherlands had been supplying about a quarter of Germany’s gas.

That's created an opportunity for all the major gas suppliers to increase their efforts at winning over Germany.

“Germany is the biggest market in Europe and the demise of Dutch gas is a key issue there,” said Jonathan Stern, a senior research fellow at the Oxford Institute for Energy Studies. “A lot of the excitement is happening because of the decline.”

Norway has been able to cut its production costs “hugely,” according to Stern, but finding additional supply hasn’t amounted to much. New gas deposits haven’t really been found in Norway in the Barents Sea in the Arctic since the Snohvit field in the 1980s. Snohvit gas is sold as liquefied natural gas (LNG), but the Barents Sea remains isolated from the rest of Norway’s export-pipeline system.

“They are doing very well in terms of current production, but there is a question mark how much they can find in the future,” said Stern. “We don’t see any major increase in Norwegian gas.”

Russia has been increasing its stake in the market through building a second giant pipeline to Germany. Its state-controlled producer Gazprom PJSC last week started building its second direct link to Germany’s Baltic Sea coast. Gazprom’s low-cost Siberian fields could increase output in high volumes if needed. But it has been a controversial topic in Europe.

President Donald Trump has been heating up the debate over supplying Germany in an attempt to secure sales for U.S. LNG to the German market.

Qatar, the biggest LNG producer, is discussing supply deals with the Germany’s utilities, which is adding more competitive pressure to the market. Qatar is attempting to outbid the U.S.’s strategy for Germany and all of Europe. Talks have been held with German gas utilities Uniper and RWE on constructing the country’s first-ever LNG terminal.

Germany, like other markets, has been cautious over whether LNG is the best way to go forward. LNG suppliers have been making the case over the benefits of powering energy, ships, and freight carriers with LNG, but the cost of building the fueling infrastructure and converting power plants, sea vessels, and ground transportation vehicles is extremely costly. LNG is becoming a source of power for utilities around the world, and Germany is starting to take it more seriously.

RWE AG, Germany’s biggest utility, recently committed to buying LNG for a yet-to-be-built terminal near Hamburg. Whether the utility will strike a supplier agreement with U.S. sellers or Qatar remains to be seen.

Chancellor Angela Merkel said last week it is up to the German power companies to secure supply deals that make financial sense.

For the U.S., exporting LNG from its shale boom started about two years ago, and has become more important than its domestic market. The Trump administration has been competing with Russia and Qatar to secure footing in the potentially large German LNG market. Earlier this year, the president called Germany a “captive to Russia.” He would like Germany and all of Europe to be a “massive” buyer of LNG from the U.S.

Norway will have to keep its options open for retaining its share of the major German gas market.

By Jon LeSage for Oilprice.com