With energy security and high prices in mind, EU and Norway strengthen ties with new deal

The global crisis, exacerbated by Russia’s attack on Ukraine, is constantly shifting the outlook for the supply, demand, and price of hydrocarbons, which is raising concerns about energy security. In such a landscape, the European Union is taking steps to secure its energy independence from Russia and the latest deal with Norway, strengthening energy cooperation between these two parties, is another move in that direction.

In light of the war in Ukraine and the EU’s determination to end its reliance on Russian fossil fuels, intending to ban almost 90 per cent of Russian oil imports by the end of the year, Norway and the EU reached an agreement on Thursday, 23 June 2022, to further strengthen their close cooperation in the field of energy, aiming to deepen their long-term energy partnership.

This agreement acknowledges “the urgency to act in order to increase energy independence and to work towards reducing energy prices in the EU and in Norway, while cutting our greenhouse gas emissions by 2030 and improving Europe’s resilience to the negative consequences of the Russian invasion of Ukraine and of climate change,” the two explained in a joint statement.

To this end, Frans Timmermans, the European Commission Executive Vice-President, Kadri Simson, Commissioner for Energy, and Terje Aasland, Norwegian Minister of Petroleum and Energy highlighted the strong relationship between the EU and Norway as “neighbours, partners, and allies,” sharing common fundamental values, climate objectives and a common regulatory framework through the European Economic Area (EEA), as well as a continuous energy policy dialogue.

The parties note that Norway is “the biggest producer of oil and gas” in Europe with a production contributing significantly to European energy security by delivering approximately a fraction of one-fourth (25 per cent) of the EU countries’ gas consumption.

Furthermore, Norway and the EU point out the importance of the European energy market as “the main export market” for the Norwegian gas and oil sector and the future potential for cooperation on offshore renewable energy and hydrogen, driven by “ambitious EU objectives” under REPowerEU Plan, and on carbon capture and storage (CCS).

As the EU established the EU Energy Platform in April 2022 to secure energy supply at affordable prices in the current geopolitical context and to phase out dependency on Russian gas, it is also eyeing more Norwegian gas with this deal.

As the average CO₂ and methane emissions from the production of oil and gas in Norway are low in a global context, less than half of the global average, the two believe that this underscores both parties’ commitment to the Paris Agreement and to reaching net-zero emissions by 2050. The EU and Norway intend to work together to ensure a clean energy transition with reliable access to energy.

Both have agreed that the importance of Norway’s oil and gas production for European energy security has increased further after Russia’s “unjustified and unprovoked war of aggression against Ukraine.”

Expressing its appreciation that the oil and gas producing companies in Norway are currently producing gas at a very high capacity, the EU said: “Given the high production levels seen in Norway in the first months of the year – a trend that is anticipated to continue for the rest of the year – there is strong potential for increased sales to Europe in 2022, bringing close to 100 TWh of extra energy to the European market.”

Norway and the EU expressed mutual interest to ensure “orderly and well-functioning” markets for gas and electricity, in recognition of the impact of high energy prices on households and the economy.

In addition, the EU explains that Norway has “significant remaining” oil and gas resources and can, “through continued exploration, new discoveries and field developments, continue to be a large supplier to Europe also in the longer term beyond 2030. The EU supports Norway’s continued exploration and investments to bring oil and gas to the European market.”

Therefore, the agreement reached between Timmermans, Simson and Aasland will enable the EU and Norway to “step up cooperation” in order to “ensure additional short-term and long-term gas supplies” to address the issue of high energy prices.

An analysis, published by S&P Global, confirms that Norwegian pipeline gas exports to continental Europe and the UK remained at the top of the five-year range in May amid sustained high European prices.

According to S&P Global Commodity Insights data, Norwegian deliveries totalled 9.49 Bcm last month with supplies at the top of the five-year range for the fourth consecutive month.

Moreover, the analysis reveals that European gas prices have been at sustained highs since September 2021, first due to Russian supply constraints and concerns over storage, followed by a surge in prices after Russia’s invasion of Ukraine on 24 February.

According to Platts price assessments by S&P Global, the Dutch TTF front-month contract was last assessed on 22 June at Eur127.75/MWh, up 55 per cent since the start of the month and 335 per cent higher year-on-year.

In recent months, the Norwegian state-owned energy giant, Equinor, boosted the country’s gas supply to divert gas for export to Europe. To this end, Equinor plans to maintain higher gas output at its Heidrun, Oseberg and Troll fields through the summer after increased production permits were approved by the energy ministry.

Norwegian gas production is also set for a boost after Equinor resumed LNG production at the Hammerfest export plant earlier this month.