European Gas Faces Crunch Time as Norway Enters Repair Season

(Bloomberg) -- Norway’s vast natural gas industry is about to embark on its annual heavy maintenance spree at a crucial time for the wider continent.

For about three weeks as of late August, Europe will miss flows equivalent to daily gas needs in Italy or France. While the works are a routine practice for gas facilities during summer — when demand is typically lower — the stakes are high this time as it coincides with a bout of intense price volatility.

Europe’s gas market has been particularly sensitive to disruptions this summer, as heat waves in other parts of the world have ramped up competition for the fuel. Traders are bracing for a possible halt to flows from Russia after a Ukrainian incursion on its border, and an escalation of the conflict in the Middle East could spell further trouble.

“Europe is already struggling,” said Florence Schmit, a European energy strategist at Rabobank. “Any deviation to the planned maintenance season can cause significant fluctuations in gas availability and in turn market prices, especially this year.”

Since Moscow’s invasion of Ukraine two years ago left Europe scrambling for gas, Norway has overtaken Russia as Europe’s top supplier, relying extensively on a single company Equinor ASA.

In previous rounds of maintenance it’s been common for the schedule to change throughout the process. The repairs involve careful balancing of pipeline pressure, while the complexity of the facilities and the North Sea’s harsh environment means it’s not unusual for additional work to be discovered.

The repair season’s importance for Europe’s energy security became clear last summer, when unplanned works at some Norwegian facilities sent prices soaring. More recently, at the start of June, a small crack on a pipeline at the Sleipner Riser field disrupted supplies to the UK and also caused prices to jump. 

“You will always see a shift from what was planned; something will take longer or less time and that has ripple effects across the rest of the work,” said Alfred Skar Hansen, senior vice president for system operation at Gassco AS, which operates Norway’s massive Karsto plant and is also responsible for the country’s pipeline network.

Karsto is one of the facilities which will be completely halted during the works, while production will also be cut at the giant Troll field, overseen by Equinor. Norwegian gas volumes will be over 120 million cubic meters lower per day for about three weeks, roughly a third of its usual flows to Europe.

“Risk is evaluated to ensure the lowest possible production loss,” Equinor spokesman Gisle Ledel Johannessen said. “The maintenance and turnaround activity level this fall is quite normal and we are well prepared.”

On the bright side, the continent’s storage facilities are fuller than usual for the time of year, reaching a key 90% threshold two months ahead of schedule, which may help to cushion any smaller setbacks. It’s also rapidly expanded renewables capacity and built liquefied natural gas infrastructure to import fuel from elsewhere. 

Still, Europe is weeks away from the official start of its heating season, when demand usually ticks up, and it’s also facing steep competition from Asia and elsewhere for LNG cargoes. That could translate into higher prices for both the industry and consumers if something goes wrong.

“The challenge comes when something unexpected happens,” said Gassco’s Hansen. “It is very hard to be prepared for everything.”

©2024 Bloomberg L.P.