Norway overtakes Russia as top European gas supplier

Norway has overtaken Russia as Western Europe’s largest gas supplier. The news, reported by Reuters last week, comes after EU member states have actively tried to reduce their dependence on Russian energy amidst growing concerns over coercion and geopolitical instability.

During the first quarter of 2015, Norway exported 29.2 billion cubic meters (bcm) to countries in Western Europe including Germany, France, Belgium and the United Kingdom. In the same period, Russian gas accounted for 20.29 bcm.

It is the first time that Norwegian gas exports have convincingly outstripped those of Russia since a brief period in 2012.

Reducing European dependency on Russian energy

Analysts have reported that the European Union’s drive to reduce its Russian energy dependency is at the heart of this headline. The EU has sought to minimise its dependence on Russian gas – instead choosing to purchase from Norway and other more favourable suppliers.

Politicians and procurement chiefs across Europe have been complaining for some time that Russia abuses its dominant market position to apply leverage over supply partners. Russia has always held a commanding position over the regional gas market and, consequently, has been able to charge higher prices.

European leaders have also become mindful of the situation in Ukraine, where the ongoing conflict puts the main gas supply route between Russia and Europe under threat. But reducing the dependence on Russian supply is not the only explanatory factor at play.

Other explanations

Some buyers have put off purchasing from Russia in the hope that oil-indexed prices (a procurement mechanism which links the price of natural gas to the price of oil) will drop later in the year. This indicates that much of the rebalance towards Norway could only be temporary.

One supply-side explanation comes courtesy of the Troll field in Norway. This large gas field was returned to full capacity last March and began pumping out higher volumes to coincide with the increased winter demand.

Higher imports could mean more instability in the UK gas market

Elsewhere in the news, Centrica, the parent company behind British Gas announced that it will be increasing the volumes of gas imported from both Russia and Norway.

Earlier this month, the FTSE 100 company announced that it was updating a deal agreed with Norway’s Statoil to bring in 7.3 bcm of gas per annum up from the 5 bcm announced in 2011. They also extended a deal with Gazprom to take delivery of 4.2 bcm each year up from 2.4 bcm per annum previously.

Centrica said: “Britain needs around 70 bcm of natural gas each year to heat homes and businesses and to generate electricity, and the UK now needs to import more than half of this.”

The increasing dependence on foreign gas should be of concern to business buyers and households in the UK. An increased appetite for imports, plus a limited capacity to store large volumes of gas means the UK is exposed to more market price shocks.

Previously, the UK didn’t import any of its gas, but supplies have been falling since 2000. Today, nearly 50% of our natural gas supply is imported and this figure is expected to reach almost 70% by the end of the decade.

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