Jonas Gahr Store, Norway’s Prime Minister, prompted on Wednesday that the Scandinavian nation, a devoted NATO ally and a European Free Trade Association member, could be open to gas price discounts for energy-starved European nations. It’s a smart move, given that the size of the discount is less important than the gesture.
Drastic cuts to gas supplies from Russia to Europe this year have turned Norway into the European Union’s main source of the fuel. Before the Ukrainian war, the Scandinavian nation was covering just 20% of the 27-nation bloc’s gas demand, compared to Russia’s 40%.
After ramping up its production, Norway can now deliver nearly 90 billion cubic metres of gas to the EU this year, or nearly 25% of the bloc’s demand, according to research firm Rystad Energy. That’s higher than the 20% Russia will likely provide. For Britain, Norwegian gas imports could rise from 41% of total demand in 2021 to nearly 50% in 2022.
Thanks to soaring fuel prices, Norway is in an enviable position. It can expect revenue from petroleum to triple to a record 933 billion Norwegian crowns (93.7 billion euros) this year. Net profit at energy giant Equinor rose 2.5 times to $6.8 billion year-on-year for the second quarter of 2022. Oslo also sits atop a $1.1 trillion sovereign wealth fund.
With so much spare cash, and a nation of just 5 million inhabitants, it has the elbow room to cut its struggling allies some slack, as a severe gas crunch could topple the EU into a recession.
But offering discounts in a seller’s market makes little financial sense.
However, Jonas Gahr Store will take into consideration that a financially stretched EU, would certainly damage trade with Oslo. The EU is their largest trading partner, to which Norway exported 75 billion euros’ worth of goods in 2021, about 60% of the total. More than 90% of Norwegian gas heads to the EU and Britain every year, so being proactive and offering the EU a solution, is the smart move.
EU ministers are meeting today, Friday 9th Sept, to discuss imposing a cap on Russian gas imports to curb costs. If Oslo offers a temporary discount on existing bilateral contracts, it will avoid giving the impression of being bullied and find some love from within the EU.
It would also demonstrate that Norway recognises the need for European solidarity at a time when month-ahead gas contracts are currently trading at 210 euros per megawatt hour, which is five times summer 2021 levels.
For Norway, easing Europe’s economic pain will yield dividends of its own.
Foto credit: Sleipner field aerials, Equinor
