Norwegian gas flows to Europe, UK slide further in May

Norway's pipeline gas supplies to continental Europe and the UK fell further in May to an eight-month low of just 7.35 Bcm, data from S&P Global Platts Analytics showed June 5.

Deliveries averaged just 237 million cu m/d last month -- down from the 270 million cu m/d in April and 305 million cu m/d in March.

Record low European gas prices prompted continued commercial turndown on the Norwegian Continental Shelf in May, while the month also marked the first period of significant planned maintenance on a number of assets.

Work included a three-day shutdown of the French import terminal at Dunkirk for planned maintenance and significant volume impact due to planned maintenance at the Troll field and the Kollsnes gas processing plant.

There were also a number of unplanned outages in May that reduced gas exports from the NCS, including at the Visund and Kvitebjorn gas fields.

'Value over volume'

The supplies last month were the lowest since September last year, as dominant producer Equinor said it would continue to defer Norwegian gas production through 2020 due to low prices.

CFO Lars Christian Bacher said on May 7 that Equinor would focus "more than ever" on its value-over-volume strategy and plans to push output from this year into 2021 and beyond when European gas prices are higher.

Under this long-standing strategy, Equinor can defer Norwegian gas production from its flexible fields -- Troll and Oseberg -- at times of low prices.

Bacher reiterated that Equinor could supply Norwegian gas to Europe at a delivered cost of "well below $2/MMBtu."

However, with the TTF day-ahead gas price having fallen below $1/MMBtu in mid-May, according to S&P Global Platts price assessments, there is pressure on the cost of Norwegian delivery.

In addition, Equinor has already deferred some Norwegian gas output in the first quarter, and may be limited in its level of flexibility through the rest of 2020.

"Norwegian production will likely be lower year on year in Q2 2020, for a fourth consecutive quarter, which we have long assumed on the back of production deferrals," Platts Analytics said in a recent note.

"With the steep contango still held by the market curve, these deferrals should continue through Q3, but not to the same degree as in Q3 2019, given the diminishing incentive for keeping these deferrals going," it said.

Average Norwegian short-run marginal costs are generally some of the world's lowest, but certain older dry gas fields are now looking exposed.

Platts Analytics sees the Shell-operated Ormen Lange field as a "prime candidate" for curtailing production at current prices.

UK slump

Norwegian flows to the UK in particular were curtailed in May as the NBP day-ahead price remained well below German prices.

The NBP day-ahead price averaged $1.43/MMBtu in May, according to Platts price assessments, while the German NCG price averaged $1.62/MMBtu, incentivizing supplies to Germany.

The UK imported just 840 million cu m of Norwegian gas in May, the second lowest volume since 2011, behind only September last year when Norway supplied just 690 million cu m to the UK.

Norwegian exports to Germany remained high, meanwhile, at 3 Bcm last month, having hit their highest since early 2016 in January.

At the same time, flows to the Netherlands rose again in May to 1.34 Bcm.

Exports to France fell sharply to just 1.11 Bcm from 1.51 Bcm in April on the Dunkirk maintenance, while supplies to Belgium were 1.05 Bcm, down 12% month on month.

Meanwhile, Europe's only LNG liquefaction plant, the Equinor-operated Melkoya plant at Hammerfest, was taken offline for planned maintenance on May 15.

The work -- which is due to be completed by June 18 -- has meant the full 18 million cu m/d capacity of the plant being shut in.