Norwegian State bringing into its fold world’s ‘most extensive’ gas network for $1.6 billion

Norway’s Ministry of Energy has signed purchase agreements with seven companies forming part of three joint ventures (JV) that own “key” parts of the country’s gas transportation system.

Agreements have been concluded with A/S Norske Shell, CapeOmega, ConocoPhillips Skandinavia, Equinor Energy, Hav Energy NCS Gas, ORLEN Upstream Norway, and Silex Gas Norway. Six of the seven owners have accepted the State’s offer to buy their entire interests in the three JVs—Nyhamna, Polarled, and Gassled. The NOK 18,1 billion, or $1.6 billion deal requires consent by the Norwegian Parliament before becoming effective. 

North Sea Gas Infrastructure and M Vest Energy did not accept the State’s offer for their interests in Nyhamna and Polarled respectively, while Equinor Energy accepted the offer but will continue to own a minority share in the two JVs. As the State wants full ownership of the Nyhamna and Polarled, it aims to take over the remaining interests when the license period expires or through an agreement before this. 

“I would like to thank the companies for a good, constructive process and for agreements that I believe benefits all parties involved. I am very pleased that we have found a solution resulting in a full State ownership of the large and important Gassled infrastructure,” said the Minister of Energy, Terje Aasland.

According to Gassco, the gas transport system comprises more than 8,800 kilometers of steel pipes, making the network the most extensive in the world. The first pipeline was laid in 1977 and gas is now exported from more than 60 fields, covering around 25% of gas consumption in the EU.

The key parts of the extensive gas transport system on the Norwegian continental shelf (NCS) are owned through Gassled, Nyhamna, and Polarled JVs, whose ownership structure is a combination of the Norwegian State (SDFI), E&P companies, and single-purpose infrastructure owners. Four additional JVs—Haltenpipe, Valemon Rich Gas Pipeline, Utsira High Gas Pipeline, and Vestprosess DA—were not part of these transactions.

The license periods of large parts of the Gassled-operated infrastructure expire in 2028. As the end of the license period drew near, the JV partners sought early clarification regarding ownership of the infrastructure after the expiration. As a result, the Ministry of Energy started working on this issue and alternatives in 2020. 

Since the State, which owned the key parts of the upstream gas infrastructure until 2013, has the right of reversion at the end of the license period, the intention to invoke it was announced in 2023. Based on this, the ministry started discussions with the current owners in April 2023.

The owners requested a state takeover before the licenses expired, giving them a right to compensation. The State agreed, with the ministry sending an offer on July 5, 2024, to buy all of their interests in Gassled, Nyhamna, and Polarled JVs effective as of January 1, 2024. As explained, the offer to Equinor was made subject to a sufficient degree of acceptance from the other companies to ensure that user interests are represented in cases of multi-party ownership.

In its statement, the ministry assured the public that state ownership does not affect its regulation of the sector, noting that the main features of the regulation of the gas transport system will be continued.

The Ministry considers the state as the most suitable owner of this infrastructure as it will facilitate the overall objective of the Norwegian petroleum policy, including low tariffs for users. After the license period expires, commercial infrastructure owners will no longer have the same incentives to tie up capital as the tariffs have reflected returns on large historical investments.

Petoro will continue as the licensee and manage the SDFI shares on behalf of the Norwegian State and it will also be given a separate mandate to manage gas infrastructure ownership in line with the country’s petroleum policy. The firm will manage gas infrastructure separately from its portfolio to avoid SDFI shares in production licenses interfering with its decision-making. Gassco will stay on as the operator and use technical service providers.

Investments in any new gas infrastructure linked to the petroleum activity on the NCS, including a possible increase in export capacity from the Barents Sea, will be driven by oil and gas players and their need for gas transport, the Ministry explained, adding that the tariffs will be cost-based. Furthermore, the change will not impact the policy related to any other possible future infrastructure between Norway and Europe, including pipelines for the transport of CO2 or hydrogen. 

One such option for a hydrogen value chain between Norway and Germany is being considered, with a feasibility study recently confirming that is technically possible to establish a value chain for transporting large quantities of hydrogen from the Scandinavian country to Germany.

Meanwhile, Equinor recently discovered oil and gas on the Rhombi prospect, holding an estimated 13–28 million barrels of oil equivalent. The prospect is situated near the Fram field in the North Sea, where 12 other discoveries were made over the previous six years. Equinor is the operator with a 45%-interest, while its partners are Vår Energi (40%), and Inpex Idemitsu Norge (15%).

The state-owned giant also swapped assets with Petoro in May, which was described as a value-neutral deal. Thanks to this, Equinor increased its ownership in the Heidrun field and Noatun discovery, while reducing its ownership in the Tyrihans field and the Johan Castberg field, as well as the Carmen and Beta discoveries.