Vanessa Dezem and Lars Erik Taraldsen
Tue, October 26, 2021
(Bloomberg) -- Europe’s energy crisis and a spike in natural gas prices are proving to be a boon for Norway, delivering a flood of revenue for the country that’s already one of the world’s richest.
Norway, with huge oil and gas fields, saw exports hit an all-time high for a third straight month in September, with natural gas sales jumping seven-fold from a year earlier. The bounty is the result of both a bounce in energy demand after pandemic restrictions were eased, coupled with a surge in prices.
The country, which accounts for 25% of European Union natural gas imports, is reaping the financial benefits of a crisis that’s squeezed households and businesses across much of the region, forcing governments to promise aid to help with bills.
State-owned Equinor ASA, which publishes third-quarter results Wednesday, is set to be a winner of the energy crisis. Of the energy giant’s total production, about 35% is gas sold in Europe. Net income was probably $2.3 billion, more than six times the year-earlier figure.
The flood of cash -- higher than had been anticipated -- is setting Norway apart from other countries worried about bloated debt levels in the wake of stimulus spending during Covid lockdowns. It means the state can cut the amount it needs to tap from its sovereign wealth fund, the world’s biggest at $1.4 trillion.
Norway’s new government, formed after elections in mid-September, plans to continue to develop the country’s lucrative oil and gas fields. According to the previous administration, fuel revenue is expected to surge 72% to 184 billion kroner ($18.8 billion) this year, 30 billion kroner higher than estimated at the start of the year. It’s seen hitting 277 billion kroner in 2022.
“There are very high gas prices right now and gas is an important part of our exports,” Norway’s minister for petroleum and energy, Marte Mjos Persen, said in a telephone interview. “We know how important our oil and gas revenues and oil wealth are for welfare development.”
Europe’s supply squeeze may not ease for some time. Gas-storage sites in the EU are at their lowest seasonal level in at least a decade, and the World Bank’s latest Commodity Markets Outlook forecasts that energy prices will remain elevated into 2022.
Norway has benefited more directly from the recent gas price moves than competitors because of its contracts. Producers are more exposed to European hub pricing than Russia or Algeria, whose supplies are still largely linked to oil prices.
“Norway’s market based contract pricing is paying off these days,” said Sindre Knutsson, a gas market analyst at consulting firm Rystad Energy.
Despite the gas squeeze on Europe, Norway is avoiding political damage, unlike Russia, which has faced criticism over the crisis.
So far, Russia hasn’t sent any significant additional volumes to the region’s spot market, citing the need to prioritize filling domestic storage ahead of winter.
Gas deliveries from Norway to the EU have risen by close to 5% in the first nine months of the year, according to Gergely Molnar, an energy analyst at the International Energy Agency.
“Norway is playing a key role in ensuring seasonal supply flexibility,” he said.
Domestically, the country is insulated from the gas-price surge, as more than 90% of its power needs are met by domestic hydroelectricity.
It has the “unusual double-edged benefit of being a major gas producer, so benefiting from high prices, yet a very small gas consumer,” said Andrew Hill, head of European gas analysis at BloombergNEF.
However, it’s having its own crisis thanks to a water shortage that’s hit the hydro industry and sent power prices higher.
The government is looking for solutions “for those who struggle the most,” said Persen. That could mean some of the extra revenue flowing in from exports gets directed toward aid for households.
“Those who worry should not be alone with those worries,” she said. “But this is also an important reminder that our power generation system is very weather dependent and it is strongly affected by the conditions in our neighboring countries.”
Exclusive-Gas crisis helps to land BP $500 million windfall
Dmitry Zhdannikov
Tue, October 26, 2021
LONDON (Reuters) - BP's trading team made at least $500 million in the third quarter of 2021, two sources with knowledge of the company's trading results said, as the energy major benefitted from a gas crisis that has left consumers and industries smarting.
Natural gas and power prices soared to an all-time high in Europe and parts of Asia in August as the global economy recovered from the pandemic and energy consumption increased faster than supplies.
Low gas stocks after a cold winter and hot summer as well as poor renewables output contributed to the rally.
The increase in power bills sparked protests in Spain and put European governments under pressure to find ways to protect consumers and industry and calm the markets. European Union https://www.reuters.com/article/eu-energy-idAFL1N2RM0FT countries failed to agree on a bloc-wide response on Tuesday.
In China, the government has taken measures to increase coal output and reform power markets to ensure homes are heated this winter.
BP's gas trading results were disclosed at an internal call with staff earlier this month, the sources said, asking not to be named because they are not authorised to speak to the media. BP declined to comment for this story.
The gains were made as customers in Europe and Asia rushed to buy Liquefied Natural Gas (LNG) from the United States and other parts of the world to cope with shortages - in a reversal of the situation two years ago when LNG producers faced a global glut.
RIVALS COULD MAKE EVEN MORE
BP's strong gas trading results are likely to provide an early indication of how some of the other international energy companies will benefit from the global gas crunch.
BP has a smaller LNG and gas trading book than its rivals, including Shell and Equinor, which could post even higher profits.
Shell, Equinor and BP will report results this and next week.
Energy companies typically do not disclose details on profits and loss from trading in their quarterly earnings. They usually only state whether trading positively or negatively contributed to overall financial results.
BP and Shell are banking on cash flow from trading to support them through their transition to a business model less reliant on fossil fuels.
They need trading to generate profit as they focus more on renewable and power markets that tend to have lower margins than oil and gas.
BP’s trading arm https://www.reuters.com/article/us-bp-trading-exclusive-idUSKBN2B30GK made nearly $4 billion in 2020 in profits, almost equalling the record trading profit in 2019.
The company has pledged to cut oil and gas output, while Shell says its oil production has peaked. Both say they are expanding trading and they still make billions of dollars a year moving oil and gas around the world.
Although BP plans to expand power and renewables trading, many of those markets are highly regulated and unlikely to deliver the same profit margins as oil and gas.
Last year, the bulk of BP's profit was made in oil as the price first slumped as a result of the impact of global lockdowns on fuel demand, and then recovered in a rally that has continued through 2021 to take oil prices to near their highest since 2014.
One of the biggest trading plays in 2020 was to store oil during the downturn, buying it at low prices and selling it later when prices recovered.
This year, natural gas has been an equally strong performer as a result of the market dislocations that led to the Chinese power shortage and tight European gas supplies.
BP has already earned close to $500 million in trading the first quarter of 2021 after a deep freeze in Texas sent gas prices surging, sources said.
Dmitry Zhdannikov
Tue, October 26, 2021
LONDON (Reuters) - BP's trading team made at least $500 million in the third quarter of 2021, two sources with knowledge of the company's trading results said, as the energy major benefitted from a gas crisis that has left consumers and industries smarting.
Natural gas and power prices soared to an all-time high in Europe and parts of Asia in August as the global economy recovered from the pandemic and energy consumption increased faster than supplies.
Low gas stocks after a cold winter and hot summer as well as poor renewables output contributed to the rally.
The increase in power bills sparked protests in Spain and put European governments under pressure to find ways to protect consumers and industry and calm the markets. European Union https://www.reuters.com/article/eu-energy-idAFL1N2RM0FT countries failed to agree on a bloc-wide response on Tuesday.
In China, the government has taken measures to increase coal output and reform power markets to ensure homes are heated this winter.
BP's gas trading results were disclosed at an internal call with staff earlier this month, the sources said, asking not to be named because they are not authorised to speak to the media. BP declined to comment for this story.
The gains were made as customers in Europe and Asia rushed to buy Liquefied Natural Gas (LNG) from the United States and other parts of the world to cope with shortages - in a reversal of the situation two years ago when LNG producers faced a global glut.
RIVALS COULD MAKE EVEN MORE
BP's strong gas trading results are likely to provide an early indication of how some of the other international energy companies will benefit from the global gas crunch.
BP has a smaller LNG and gas trading book than its rivals, including Shell and Equinor, which could post even higher profits.
Shell, Equinor and BP will report results this and next week.
Energy companies typically do not disclose details on profits and loss from trading in their quarterly earnings. They usually only state whether trading positively or negatively contributed to overall financial results.
BP and Shell are banking on cash flow from trading to support them through their transition to a business model less reliant on fossil fuels.
They need trading to generate profit as they focus more on renewable and power markets that tend to have lower margins than oil and gas.
BP’s trading arm https://www.reuters.com/article/us-bp-trading-exclusive-idUSKBN2B30GK made nearly $4 billion in 2020 in profits, almost equalling the record trading profit in 2019.
The company has pledged to cut oil and gas output, while Shell says its oil production has peaked. Both say they are expanding trading and they still make billions of dollars a year moving oil and gas around the world.
Although BP plans to expand power and renewables trading, many of those markets are highly regulated and unlikely to deliver the same profit margins as oil and gas.
Last year, the bulk of BP's profit was made in oil as the price first slumped as a result of the impact of global lockdowns on fuel demand, and then recovered in a rally that has continued through 2021 to take oil prices to near their highest since 2014.
One of the biggest trading plays in 2020 was to store oil during the downturn, buying it at low prices and selling it later when prices recovered.
This year, natural gas has been an equally strong performer as a result of the market dislocations that led to the Chinese power shortage and tight European gas supplies.
BP has already earned close to $500 million in trading the first quarter of 2021 after a deep freeze in Texas sent gas prices surging, sources said.
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