Norsk Hydro positioning for gas market opportunities
Greater demand, more competition
Growing demand coupled with liberalization is expected to open up new opportunities in the European gas market in coming years. As a leading gas producer in Norway, Norsk Hydro is trying to take advantage of the opening provided by these changes.
Players in the gas market are waiting to see how the European Union's gas liberalization directive - due in force in August - will change the way business is done. Helge Stiksrud, head of Hydro's communications, thinks the change in rules should be seen in perspective. "The dynamics in the marketplace are as important as the regulatory situation," he says. "It's how third-party access to pipelines will be used by the players that matters."
Hydro has a foot in the consumers' as well as the producers' camp, consuming not much less than 3 bcm/year in its European fertilizer plants. Some of that gas it supplies, for example via the UK Interconnector pipeline, in which it has capacity reserved.
European gas demand is forecast to continue growing at a steady rate, from approximately 450 bcm/year in 2000 to around 600 bcm/year in 2010. A significant shortfall in committed supply volumes is expected to open up as the decade progresses. "There will be more opportunities in fresh demand in the second half of this decade," says Stiksrud. "We see the UK as a very interesting market in the years to come. We also see opportunities in southern Europe, especially in the power sector; there may also be opportunities in Central Europe, due to diversification away from purely Russian supplies; and also demand increase caused by economic growth.
"In the northwestern part of the Continent, there's a more balanced supply and demand. But there will also be opportunities arising independently of the supply/demand balance, due to consumers wanting to diversify their supply sources."
Norway is already pumping large volumes of gas into Europe. In a few years' time, its committed supplies will reach a peak of around 72 bcm/year, which will continue until the middle of the next decade. As further opportunities arise, however, it is not unrealistic for the country to aim at sales of 100 bcm in the longer term. Whether the current system, whereby all sales are negotiated through the Gas Negotiating Committee (GFU) consisting of Hydro and Statoil, will survive liberalization, remains to be seen. It has done a good job, in Stiksrud's view.
If the GFU is wound up, and every producer has to take responsibility for marketing its own gas, Stiksrud sees no problems for Hydro. Its remaining gas resources at end 1999 totaled some 300 bcm, and it is a partner in many of Norway's main producing fields, including Troll, Sleipner, Ekofisk, Statfjord - and also Frigg, the now almost exhausted giant which has fed the UK with gas for over 20 years. It is also a licensee in Åsgard and operator of Oseberg, from both of which fields gas exports are due start in October. Its undeveloped reserves include the giant Ormen Lange field in the NOrwegian Sea and Snøhvit in the Barents.
The start of gas exports from Oseberg is of particular significance, as it will mark an important milestone in one of Hydro's marketing initiatives - the development of Heimdal as a transport hub. The Heimdal Field is almost depleted, but the production platform is in good condition. This summer, Hydro, which took over the operatorship from Elf in 1997, installed a new riser platform alongside it to provide the capacity to put large gas flows through the field center.
Oseberg gas will only be in transit through Heimdal, having already been processed at Oseberg on the new Oseberg D gas platform. In summer 2001, however, gas will start arriving from Statoil's Huldra Field for processing on Heimdal. Next year should also bring supplies from Vale, the first of three small satellite fields which Hydro plans to tie back to Heimdal.
Heimdal is already well connected to the Continent. From it, a section of Statpipe runs to the Draupner center, at which point trunklines to Germany, Belgium, and France can be accessed. Now, Hydro is waiting for government approval to lay a small section of new pipeline which will open up a strategically important link to the UK. This is the Vesterled project, which involves a 35-km pipeline from Heimdal to a point on the Norwegian Frigg pipeline just downstream of the Bruce Field in the UK sector.
In the medium term, Hydro sees the UK developing into an interesting gas market, not least as the gas-fired power generation segment grows. The way is open once more following the recent ending of the UK government's moratorium on new gas-fired power plant projects.
The UK also is considered to be an interesting market for Ormen Lange's 390 bcm of reserves. The field, which could supply 15 bcm/yr from 2006, is operated by Hydro in the development stage, though Shell is responsible for marketing. It will be a challenge to get sufficient long-term contracts to bring Ormen Lange on stream, Stiksrud says.
It will also be a technical challenge to bring Ormen Lange on stream. It lies in deeper waters - 800-1,000 meters - than any field yet developed in Norway, with unstable seabed conditions. Hydro's preferred development scheme is subsea facilities combined with subsea processing, a technology the company has pioneered on Troll, with gas being exported directly to an onshore treatment plant.
Norsk Hydro has redeveloped the Heimdal field center, where a new riser platform has been installed, to serve as a gas transport hub.
Ormen Lange, which contains a limited volume of liquids, will have to compete with condensate-rich fields such as those in the Halten Bank South area. But its immense size gives it the advantage of being able to offer economies of scale, Stiksrud says.