Selling the Statfjord gas

person By Kristin Øye Gjerde, Norwegian Petroleum Museum
Gas has been used in many European countries since the19th century, but it was first in the 1960s – after the Netherlands began production and exports from the major Groningen field – that a common market for this commodity emerged in Europe. The SovietUnion, Algeria and Norway gradually followed the Dutch as gas exporters in the1970s and 1980s. An infrastructure for production, transport, storage andconsumption was constructed as demand increased.
— The processing complex at Kårstø, north of Stavanger, has received substantial volumes of gas from Statfjord. Photo: Øyvind Hagen/Equinor
© Norsk Oljemuseum

Laying pipelines from the oil fields to thesmaller distributors called for substantial investment. To safeguard earnings,sales contracts usually running for 20 years were entered into between oilcompanies in the producer countries and distributors in the consumer nations.

Gas exports from the Norwegian continental shelf (NCS) began with the development of the Ekofiskarea and the pipeline to Emden in Germany, which came on stream in 1977.

Frigg also began sending gas through pipelines to St Fergus in Scotland during the same year. This field supplied the British with a third of their gas consumption in the 1980s.

The first sales were made under “field depletion” contracts covering the entire reserves in the relevant reservoir.[REMOVE]Fotnote: Austvik, Ole Gunnar. “Gasspriser under press”,  Norwegian Petroleum Museum Yearbook,  2000, p 29. A contract of this kind was also negotiated when the third major field, Statfjord, came to be developed.

Negotiations on selling Norway’s share of the Statfjord gas began in 1980. According to Håkon Lavik, who is very familiar with the process, the British were so sure of securing the contract that they initiated studies at a fairly early stage for a major gas gathering line in the northern part of the UK North Sea. This was to have started from Statfjord.

Since about 15 per cent of the field’s gas was in the UK sector, the British believed it was only reasonable that all these reserves came to them. The Statfjord licensees took a different view. They wanted competition over the sale in order to achieve the highest possible price.

In these circumstances, the licensees were fortunate that oil prices had just been trebled – which also helped to pull up the price of gas. At the same time, the gas wholesalers in continental Europe were concerned to secure long-term deliveries.  They faced a round of negotiations on additional gas from the Soviet Union, making it important to show that alternative suppliers were available. That would hopefully make the Russians more flexible in their demands.

The first contract

The consortium,as the wholesalers were called, comprised the three German companies Ruhrgas, Thyssengas and Brigitt und Elwerat, Dutch Gasunie, Belgium’s Distrigaz and Gaz de France. They eventually proved willing to pay more for the gas than the British. Statoil’s preference was for a contract where the gas price was tied to the oil price – known as oil parity – but no buyer was willing to go tha tfar. [REMOVE]Fotnote: Nerheim, Gunnar.  Norsk oljehistorie.  Volume 2,  En gassnasjon blir til,  1996,pp 50-54.

A breakthrough in the negotiations occurred just before Christmas 1980, when the consortium presented such a favourable price offer that it became the preferred buyer of gas not only from Statfjord but also from Norway’s Heimdal and Gullfaks fields. That would ensure the construction of a pipeline from the northern North Sea to continental Europe. The consortium thereby acquired the negotiating cards it needed with the Soviet Union. [REMOVE]Fotnote: Lavik, Håkon.  Statfjord. The largest oilfield in the North Sea 1997, pp 68-72.

The Statoil management had no doubt which of the buyers should win the contract. Selling the gas to continental Europe would turn the dream of landing rich gas in Norway into a reality, with Statoil as operator for a new pipeline system. This would serve as an important highway for transporting gas to European buyers.

Landing Norway’s petroleum resources on the Norwegian mainland was one of the key requirements in the “10 oil commandments” adopted by the Storting (parliament) in 1971, and was thereby a principle supported by the leadership of the Ministry of Petroleum and Energy. [REMOVE]Fotnote: Nerheim, Gunnar.  Norsk oljehistorie.  Volume 2,  En gassnasjon blir til,  1996,pp 44-47.

Once the sales contract had been finalised,it was resolved that rich gas from Statfjord should be landed at Kårstø. The heavier components (natural gas liquids) would be removed there and the dry gas piped on to Ekofisk and from there to Germany. Gas from Heimdal would join the Kårstø-Ekofisk section via a spur line. From Emden, the gas would be distributed to industry and households in Germany, the Netherlands, Belgium and France.

The British were not particularly pleased with these plans, which removed the basis for their planned gas gathering line. Nor would they accept that the UK share of Statfjord’s gas could be sold to continental Europe, even if the licensees thereby got a better price. They insisted that their share of gas should be piped via the Brent field to Scotland.  As a result, a separate pipeline was laid westwards from Statfjord B so that the three UK licensees could sell their own share of the gas to British Gas. The gathering line planned by the UK was dropped.[REMOVE]Fotnote: Lavik, Håkon.  Statfjord. The largest oilfield in the North Sea 1997, pp 68-72. On the other hand, Statpipe was completed on schedule and somewhat below budget, and became operational in the autumn of 1985. (See the separate article on Statpipe.)

Cheaper oil and price adjustments

The salescontract for Statfjord gas had an epilogue. Although oil parity had not been achieved for deliveries from Statfjord, Gullfaks and Heimdal in the agreement with the consortium, the price obtained was regarded as very good. But the global slump in oil prices during 1986 also pulled down the cost of gas.

Combined with the fact that negotiations had been under way since 1985 between the consortium and the Troll licensees over the sale of gas from that field, this put the Statfjord contract back into play. The oil price slump was in itself sufficient grounds for cancelling the deal on the basis of force majeure and renegotiating the price.

The consortium had established a price level in the Troll talks for new gas to the European market. This was accomplished by entering into an agreement on deliveries of more gas from Groningen. That established a reference price for what Troll supplies could achieve. On 29 May 1986, the sellers and buyers reached agreement on what came to be known as the Troll gas sales agreements. These were volume contracts, where the fields of origin were not specified.

A precondition for entering into the deal was that it would be possible to adjust the price agreed earlier for gas from Statfjord, Gullfaks and Heimdal. To secure the Troll contracts, chief executive Arve Johnsen agreed to this on behalf of Statoil without consulting the other licensees. That was a brutal way to negotiate, but typical of Johnsen. He was concerned to land a deal worth NOK 400 billion and wanted to avoid lengthy talks with the uncertainty that this could involve. [REMOVE]Fotnote: Ibid, pp 81-84.

The Troll agreements were the big breakthrough for Norwegian gas in continental Europe. Gas from this field helped Statoil to become the second-largest gas supplier to the European market in 2008, with a share of roughly 14 per cent.  The company was then responsible at that time for technical operation of the bulk of the Norwegian land-based facilities and underwater pipelines used to process and transport gas. This network has been developed into an extensive and flexible system with landfalls in the UK, Germany, Belgium and France.

New gas deals after 2000

New negotiations were initiated well before the 20-year depletion contract for Statfjord was approaching its end in 2005. The field’s producing life had been extended beyond the original cessation date, and Statfjord gas was now to be included in Statoil’s general sales contracts.

British demand for gas was growing, and UK wholesalers became relevant as buyers. Statoil signed a contract with BP in 2001 to deliver 1.6 billion cubic metres of gas per annum for 15 years. The choice of source fields was up to Statoil.

Where Statfjord was concerned, adjustments were made to fit with the new type of gas sales contract. Modifications were needed to the three platforms to extend the field’s producing life.

It was also resolved to invest in a new pipeline – Tampen Link – which would be tied into the existing Flags gasgathering pipeline from Brent to St Fergus. That would make it possible to export rich gas from Statfjord to the UK. At St Fergus, the rich gas was processed and the sales gas delivered to the British distribution network and sold at the UK’s National Balancing Point (NBP).

Statoil has subsequently entered into a number of contracts which incorporate gas sales from Statfjord. The largest of these was signed in 2002 with British Gas Trading Ltd, a wholly owned subsidiary of Centrica. This was the biggest gas sales contract in terms of annual volume since the Troll agreements of 1986.  Deliveries were scheduled to start on 1 October 2005 and last for 10 years. The contract was extended for a further decade in November 2011.

“Today’s agreement will help to ensure the continued security and competitiveness of gas supplies to Britain, from a trusted and reliable neighbour,” British prime minister David Cameron said at the signing ceremony. His presence emphasised the significance of the deal.

At that time, Statoil was the biggest supplier of Norwegian gas to the UK, and had invested many billions of kroner in pipelines and offshore installations to allow the export of substantial volumes. The company had 16-18 per cent of the British market, corresponding to 20 per cent of all the gas it exported from the NCS.

Part of these supplies came from Statfjord via Tampen Link and Flags, but the bulk of the gas stream to the UK arrived via the Langeled pipeline and originated primarily in the Ormen Lange field in the Norwegian Sea. Gas from Oseberg, Heimdal and Huldra can also be exported to the UK as required via the Vesterled pipeline.

Published October 30, 2019   •   Updated December 6, 2019
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