The case in summary: Experts believe that the era of extreme electricity prices in Europe is over, thanks in large part to changes in the gas market. Russia throttled gas supplies to Europe in response to economic sanctions, leading to a sharp rise in electricity prices. Gas prices have fallen because European gas consumption is 11 percent lower than normal, and because Europe now has access to American liquefied natural gas (LNG) and Norwegian gas. Experts believe that Europe is now independent of Russian gas, and that Russia has hurt itself by losing European customers. This could lead to a new golden age for Norwegian oil and gas production, and possibly an extension of electricity support in Norway. The summary is made by an AI service from OpenAI. The content is quality assured by news’s journalists before publication. – We are not going back to extreme fluctuations like we saw in 2022 This explains commodities analyst Ole R. Hvalbye at Skandinaviska Enskilda Banken (SEB). The reason? Russian gas. But first, why has electricity been so expensive? Hvalbye explains that a number of unfortunate circumstances occurred at the same time which pushed the price up in the market. On top of it all came the Russian invasion of Ukraine. Europe introduced economic sanctions, and Russia responded by cutting off the gas supply to its then largest and most important customer. – Much of the reason for the extreme price gallop that we had in July-August 2022 was that Russia shut down 80 percent of the gas supply to Europe over a period of just three months. Ole R. Hvalbye is a commodity analyst at SEB, and believes that the extreme electricity prices we have seen in recent years are now history. Photo: Moment Studio / Moment Studio As a result, the other power generation was unable to meet the needs that Europe had – and both gas and electricity prices skyrocketed. So: When wind and solar power are unable to deliver enough, it is the gas in Europe that sets the price on the continent, as well as here at home in Norway, as we are connected to a common power market. Simply explained, it can be summed up as that cheap gas in Europe means cheap electricity in Norway – and now gas is cheaper than it has been for a long time. But why has the gas price fallen so sharply? Wind power, such as here from the Øresund between Sweden and Denmark, provides a lot of electricity when it is windy. The problem is only when there is no wind. Photo: Paul Kleiven / Paul Kleiven Consumption reduced – The reason why gas prices have fallen so much in 2023 and the start of 2024 is that European gas consumption has remained surprisingly low. As of now, consumption is 9 percent lower than normal. So even though the prices are about normal, demand has not picked up completely, says Hvalbye. He adds: – You have managed to turn off consumption so much in such a short time. As a result, we have managed better than expected. He receives support from power analyst Olav Botnen in Volt Power Analytics. Olav Johan Botnen is a power analyst at Vold Power Analytics. He explains that the European consumption of electricity has fallen, which in turn has lowered the gas price to more palatable levels. Photo: Erik Wiig Andersen / news – The winter on the continent has been relatively mild, which led to less consumption than normal. In addition, industry in Europe has produced less than before the electricity crisis. Especially in the chemical industry, the largest industry in Europe, production has been cut by 25 per cent, says Botnen. – It is because the gas, which is either used directly or indirectly in production, has been so expensive. Electrochemical industry is very power-intensive, as here from the Alcoa aluminum plant in Mosjøen in Nordland. Photo: Lars-Petter Kalkenberg / news At the same time, Europe has invested heavily in buying liquefied natural gas (LNG) from the USA, the Middle East and Asia – in addition to Norwegian gas. – Right now there is more than enough access to American LNG and Norwegian gas. In sum, it is enough for the market to be calm right now. – Have you now become independent of Russian gas via pipelines? – Yes, the reception capacity for LNG in Europe has now become satisfactory. Together with the gas pipes that are still in operation, from around April we are prepared for the coldest winters. We were not at the start of this winter, says Botnen. The LNG ship Arctic Lady on its way to Melkøya to transport liquefied natural gas out into the world. Photo: Allan Klo / news Russian self-shot Hvalbye says that Russia has waged an energy policy war with Europe, and for a long time profited from the strategy. – It worked very well in the beginning. They sent just enough gas that they made the most money by sending the least amount of gas. In the autumn of 2022, large gas leaks were recorded from the gas pipelines Nord Stream 1 and 2, which run between Russia and Europe via the Baltic Sea. Photo: The Danish Defense But that is about to turn around, the analyst is to be believed. – Russia’s main customers, led by Gazprom, have been Europe. But after the invasion, Russia’s customers in Europe have disappeared, he says. – There are very few people in Europe who want to enter into long contracts with Gazprom. They have shot themselves in the foot here. Russia, for its part, has worked for a long time to develop as much capacity as possible to the east, in order to be able to send gas to Asia. The offshore ship FSRU Neptune behind a container showing a map of the gas pipeline Nord Stream 2. Photo: JOHN MACDOUGALL / AFP – But it takes time. And even some Chinese players have been critical of entering into long contracts with Putin. Thus, Russia is left with Svarte-Per. This is good news for Norwegian oil and gas production, he believes. Tracks new Norwegian golden age Hvalbye says that gas prices in Europe were originally priced according to Russian pipe gas, but that large quantities of LNG are now imported. Thus, the European gas is now priced against global LNG. In this way, the gas market in Europe has become significantly more globalized than before the Ukraine war. – Yes, and it bodes very well for Norwegian exports of natural gas to Europe and exports of oil to the world market, he says and adds: – It will be a new golden age for Norwegian oil and gas, and we can look forward to many good years ahead. . The Statfjord A oil platform is located on Norway’s largest oil field, and produces a significant amount of natural gas. Photo: Statoil/Equinor / Øyvind Hagen But he does not believe that oil and gas prices will reach the same levels as in 2022, i.e. historically high. – But compared to historical prices, we will now price somewhat higher, something we are well served by in Norway. Therefore, Hvalbye believes that the electricity subsidy can be extended for several years. – When you sell oil and gas for higher prices than normal, the margins increase and “Norge AS” prints money – in other words, they earn exceptionally well. It is because he believes the state’s increased gas revenues also belong to the Norwegian population. – Therefore, one can speculate that some form of electricity support will be extended. Higher gas revenues should also benefit consumers in the rural country – we can afford that, concludes Hvalbye.
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– They have shot themselves in the foot – news Nordland
