Maximizing Gas Revenues

Published Dec 12, 2003
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Statoil's Trading Office in London

UK has the most liberalized gas market in Europe, a market were Statoil has been active for six years. Since the opening of Vesterled, spot trading has been given increased flexibility. Supply and Trading Manager Jon Ajaxson Larsen is one of the men in charge of maximizing revenues from the sale of Statoil and Petoro gas.

The Statoil London offices houses approximately 60 people engaged in selling gas for Statoil, and Petoro. 15 of them are engaged in sport trading, headed by Jon Ajaxon Larsen. Others specialize in end user contracts, while some negotiate long-term contracts.

‘UK is the only market where we supply all levels of the market,’ Trude Måseide, Information Manager at Statoil London, says.

Experience and Co-operation
Larsen has been trading gas in London since February 2000. Before entering the London market he handled oil trading for Statoil from Stavanger.

‘Since we have been established with trading here in London since 1996, we already had a well running operation when the Vesterled pipe into St. Fergus was opened in November 2001,’ Larsen says. ‘Of course it was a distinct advantage to get a direct delivery line into the important British market, but it is also possible to move the gas to the UK via other routes.’

‘Those years of experience are important to us now. Additionally, it is very important to have excellent communication with the upstream and transportation units within Statoil, which we have. It is through this co-operation we are able to generate good prices for the North Sea gas,’ he points out.

Volatile Market
The price on North Sea gas traded in London varies greatly, depending both on season and unforeseen incidents. When we spoke with Larsen in late May 2002 the gas spot price was only half of the January 2003 gas price.

‘UK air conditioners are not yet switched on!’ Måseide says with a smile. ‘Prices varies greatly with the seasons,’ Larsen agrees.

‘The volatility in the market demands good knowledge, contracts and quick analysis in the trading team in order to achieve good value for our gas by placing it well. And we cooperate closely with out processing plants in Norway to do this,’ Larsen explains.

Five pipelines supply the British gas market. An incident in one or more of those pipelines also influences the price.

‘If there is an incidents at one pipeline while gas is traded at e.g. 12 pence, we might instantly see the price rise to 18 – 20 pence,’ Larsen says.

The Market is the Mover
Statoil also trades through the market in Zeebrugge in Belgium. Statoil’s London unit handles that trading, which has been operational since 1999. The ‘Interconnector’ going into Zeebrugge is one of the transfer lines for gas between Britain to Continental Europe, but there are several supply routes from the North Sea to the continent.

‘If the spot price is low in Britain, we might choose to focus on the continental market, through trading in Zeebrugge,’ Larsen explains.

The gas market in EU is at the moment being opened up for further commercial competition, and Larsen expects Statoil will be trading on several more markets in just a few years time.

‘At the moment London has the only complete gas trading market, which provides us with the flexibility we need to maximize gas revenues,’ Larsen says.

‘London is the natural place to locate a gas trading unit. It has a milieu for gas trading, it provides a better information flow than any other city, and it has close proximity to Norway as well as to the continental market.’

The British gas market is the most liberalized in Europe. It is also the largest, consuming 100 billion cubic meters (bcm) gas every year. Last year Statoil entered into a contract with BP to supply BP 1,6 bcm each year for 15 years.

The EU is pushing for further competition in the gas market, and is therefore welcoming spot trading. Further competition is a driving force behind the Gas Market Directive of the EU, which was recently included into the EEA agreement. The full consequences of this directive are currently being evaluated in Norway. The Norwegian Ministry of Petroleum & Energy has announced a ‘Gas Report’ to be presented in the autumn of 2002. The Gas Market Directive is mainly focused on downstream activity, which is only marginally developed in Norway. But it also handles questions of transport, opening up for third-party access to pipelines.

In a slightly longer perspective Statoil expects USA to develop its gas market for further competition. The company regards USA as a very attractive market for the Snøhvit gas in 10 – 15 years.

In addition to the spot market and the short-term gas sales, Statoil and Petoro gas is also sold through two types of long-term contracts, depletion and supply.

Depletion contracts involve the share of gas held by Statoil and Petoro in Ekofisk, Frigg, Statfjord, Gullfaks, Heimdal and Frøy. These contracts run for the producing life of the respective fields.

The supply contracts are based on volumes and do not specify which field will be the source of supply. The first supply contract, however, was signed 31 May 1986, depending directly on deliveries from Troll. When deliveries from Troll started in 1993 it doubled Norwegian gas exports and made Norway one of the most important suppliers of gas to continental Europe.

Troll is the main guarantor of deliveries under the supply contracts. Troll is currently ranked as the North Sea’s largest gas field, containing more than 1,300 bcm of recoverable gas. Other fields allocated to supply volumes under current contracts are Sleipner East, Sleipner West, Åsgard and Oseberg.

Fields currently under development and being planned are Kristin in the Norwegian Sea, just north of Åsgard, and Snøhvit in the Barents Sea. Though the Snøhvit development is not yet clarified, long-term gas contracts have already been entered into with Spanish Iberdrola and American El Paso Global LNG Company.

Statoil and Petoro’s principal customers are large national or regional gas companies such as Ruhrgas, Gaz de France, Snam, Gasunie and Gas Natural. Altogether Norwegian gas sellers are committed to annual deliveries of more than 70 bcm after 2005.

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