London — Norway's Equinor could look to turn down gas production at its giant Troll field this summer as it continues a strategy of optimizing output depending on market conditions, senior company officials said Friday.
Receive daily email alerts, subscriber notes & personalize your experience.Register Now
European prompt gas prices have slumped in recent months amid a well-supplied market, with Norwegian supplies to the UK in particular having been reduced given low demand.
Equinor traditionally flexes gas production from Troll -- Europe's biggest gas field -- and the Oseberg field, but company officials said earlier this year Equinor would not turn down the taps.
However, with European gas prices described Friday by Equinor CFO Lars Christian Bacher as "weak", Equinor may be looking to defer production from its flex fields until prices increase again.
"On Troll...we are optimizing within the production permit of 36 Bcm/year," Equinor senior vice president Svein Skeie told analysts after the company released its Q1 results.
Skeie said Equinor also flexed production from the Oseberg field.
"At all times we are evaluating how to operate [the fields] the most efficiently based on what we see in the market," Skeie said.
He added that from May onward, Equinor "often takes down production somewhat" from Troll.
In addition, Troll will undergo maintenance in the third quarter that will see production significantly reduced.
According to Norwegian gas grid operator Gassco, Troll will see a 120 million cu m/d reduction in volumes from August 24 until September 5.
"So it's about optimizing within the production permit of 36 Bcm for the year," Skeie said.
According to S&P Global Platts Analytics, Troll has already turned down some 20 million cu m/d from Troll since mid-April in line with lower UK gas demand, which would support any required repayments of the Troll production permit bank deficit.
In February, Equinor said it was in a "re-delivery" year, suggesting it would have to produce at less than its 36 Bcm permit for Gas Year 18.
Equinor is also moving away from longer-term contractual arrangements to a shorter-term pricing model.
In the meantime, though, Bacher said the company benefitted in Q1 from having locked in longer-term gas sales at higher prices than the current low prompt prices.
"The volumes that we sold last year on a season-ahead, year-ahead basis meant prices higher than at present [in Q1]," Bacher said.
"They're in the money and that contributes nicely," Bacher said.
However, Equinor in February this year said it was moving its European gas sales increasingly toward shorter-term pricing, with day-ahead indices set to take a greater role in its sales arrangements.
"We are moving away from the day-ahead, month-ahead, season-ahead, year-ahead [model], but it will take time to get more short-term pricing," Bacher said.
"We are still transitioning into the new principle announced earlier this year," he said.
Skeie said Equinor was nonetheless bullish on European gas prices in the longer term.
"We see that in the longer term that more demand for gas is coming in Europe," Skeie said.
"So what we have said in our economic planning assumption is that when we get to 2024, [we expect] an NBP price of around $8-ish/[MMBtu]," he said.
The NBP day-ahead price as assessed by S&P Global Platts on Thursday was $4.50/MMBtu, though the winter 2020 price is currently trading at some $7.10/MMBtu.
Bacher said the current gas prices were "normal" in a historical perspective.
"I think that is important to bear in mind," he said, pointing to the strong prices that prevailed last year.
Bacher said the recent lower prices had been driven by the mild winter in both Asia and Europe, resulting in more LNG supplies to Europe.
Bacher also said Equinor expects the current European gas prices of around $4.50/MMBtu to be sustained through the second quarter.
"Bear in mind we are smoothing out the change in how we trade volumes moving forward," he said.
-- Stuart Elliott, Stuart.Elliott@spglobal.com
-- Edited by James Leech, email@example.com