October 6, 2022

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You have to know this about the price of gas - E24

You have to know this about the price of gas – E24

The winter energy crisis showed how important natural gas is to Europe’s energy system. But do you know the price per cubic meter of gas…?

This is the German gas depot Etzel, operated by Finnish Fortum subsidiary Uniper.
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Many Norwegians have a certain perception of whether the price of oil is high or low.

The price of natural gas is perhaps less well known, although Norway is one of the most important suppliers of gas to Europe.

Gas is much more important in Europe than in Norway. They get 25-30 percent of their energy from gas, while we have more than 50 percent of our energy from electricity and a lot of oil, Karen Sund tells E24.

For many years, she has advised businesses and governments on natural gas through Sund Energy, and now works with biogas as a specialist in the Biogass Oslofjord network.

In Norway, it has always been the case that oil is what we make money from, while gas is less important. Now we are making the most gas. Sund says that there is still no place for gas in people’s consciousness, because we don’t use it ourselves.

Norwegian gas is used, among other things, in pipes for European homes that use it for heating and in stoves, and for companies that, for example, use it to produce strong heat in their operations, or to produce hydrogen. It also goes to gas-fired power plants that produce electricity.

note! At the beginning of April 2022, the price for gas delivery one month earlier at the TTF in the Netherlands was about 10 kroner per cubic meter (€100 per megawatt-hour), according to ice.

pig gas

This winter, gas prices have reached new levels. A month ago, the delivery price was less than 20 euros per megawatt-hour in the spring and summer of 2021, but after the Russian invasion of Ukraine the price was more than ten times higher.

– Prices were very high. It was a massive war scare that drove the price up to 220 euros per megawatt-hour at most. There are no fundamental factors that indicate this type of price. Sund says prices are off the top, but still much higher than usual.

The higher level corresponds to 24 NOK per cubic meter. By comparison, the government assumed a 2022 gas price of NOK 1.90 per cubic meter in the state budget as of October.

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Jonny Leimata is Head of Gas Trading and Sales in Gasum, Finland

Johnny Leyemata is the head of gas trading and sales for the Finnish company Gasum, which was once partly owned by Russia’s Gazprom, but is now owned by the Finnish state. The company sells gas to customers in the North. According to Liimatta, the higher prices have created challenges for some gas buyers.

– We’ve seen some of it. Fertilizer companies that use gas as a major input factor struggle to increase their prices as much as gas, and some production decreaseshe tells E24.

– For energy and heat producers, they are clearly comparing the price of gas to other energy sources, such as coal, he says.

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expensive power

This winter has opened a lot of eyes to see how important gas is to Europe. At the beginning of the winter, gas stocks were already at low levels, and they were greatly depleted when Russia’s Gazprom sent smaller than usual quantities to Europe.

Gas shortages contributed to higher gas prices, which in turn drove up electricity prices in Europe and southern Norway.

Among those who noticed gas and electricity prices was Viggo ceramics company. The company relies on high temperatures in a short time, and therefore uses gas in addition to electricity in its production.

We get about a third of our energy from natural gas, while we get two thirds of our energy from electricity. We live in the same world as everyone else, so energy prices have skyrocketed, Anne Kristine Rugland Thulin in Figgjo told E24 in March.

However, Figgjo’s gas shipments are not priced at the European level, but based on the cost of the alternative, i.e. propane. Thus, they are getting less buzz than what European gas customers received this winter.

– But the prices have risen dramatically. The cost of energy in Vigo has recently quadrupled, Thulen said in March, with electricity consumption by far most of the increase.

It wants businesses to also get electricity subsidies, something the government has so far rejected.

This is the Resavica LNG plant, which Gasum sold to North Sea Midstream Partners last year.

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– They’re desperate

Europe wants more gas from Norway, among other countries, after the Russian invasion of Ukraine. The European Union wants to reduce its dependence on Russian gas, but it is buying gas in large sums for the time being.

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– The fact that Europe did not stop imports from Russia, so what does it say about the role of gas?

– They are desperate. They cannot do without it. Sunde says they don’t want to be so dependent.

When I started working with gas in the late 1980s, Europeans were worried about not relying so much on imports from countries like Russia and Algeria.

– They would prefer not to get more than a third of their gas from each, and they want as much of Norway as possible. But then the world calmed down, and different attitudes developed in different countries towards gas from Russia and Algeria, she said.

For Norway, high prices provide huge income for companies and the state. Last year, Norway’s gas export revenue amounted to NOK 476 billion, while oil revenue reached NOK 350 billion, according to Statistics Norway.

A mixture of units of measurement

There is no standard unit of measurement for gas, unlike oil prices which are usually measured in dollars per barrel (159 liters). For gas, a combination of different units of measurement and currencies is used:

  • In Norway, the price of gas is traditionally measured in krone per cubic meter
  • Europeans measure the price of gas in euros per megawatt-hour
  • US (and companies like Equinor) measure in dollars per million British units of heat (MMBtu)
  • The British measure the price of gas in pennies per heat (100,000 BTUs)

This winter, many analysts also referred to gas in dollars per barrel of oil equivalent, to emphasize that gas has become more expensive than oil. At most this winter, gas in Europe was trading at around $600 a barrel, while the highest level for oil prices ever was at $148 a barrel in 2008.

– Why so many units of measurement?

– It’s a very good question. Perhaps it is for historical reasons, says Liimatta.

– The gas market in Europe has traditionally relied on gas pipelines from the North Sea, and different markets have adopted their preferences, such as a penny per heat in the UK and a euro per megawatt-hour in Europe. The energy market uses some gas, and electricity is priced in euros per megawatt-hour, he says.

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Gas prices are usually set in relation to some central facility where the trade takes place. Some of the best known fares are Henry Hub in the US, TTF in the Netherlands and NBP in the UK.

This is RWE’s Gersteinwerk gas power plant in Germany.

Do you have contingency plans?

Gasum is among the companies that buy gas from russia Through long-term contracts, some are also Danish Ørsted Act. Gasum also imports liquefied natural gas (LNG) from Norway, Central Europe and Russia, and produces biogas in Finland and Sweden.

– What happens if Russian gas stops?

– There is a possibility that Russian gas deliveries will stop, and we have contingency plans for different scenarios. We have a bunch of sources that aren’t just Russian, says Liimatta.

Europe has an extensive pipeline system supplied from Norway and Russia, among other places, but in recent years several liquefied gas (LNG) receiving stations have been built. Liimatta points out that the gas market has changed a lot and gone global.

Before 2018, there was very little LNG on the market. The oversupply of LNG has changed the gas market. Traditionally, Europe has been supplied by a network of pipelines from the North Sea, Russia and North Africa, he says.

Now it is a more diverse offering, with LNG flowing from the USA, Qatar and African countries. LNG has really changed the market, making imports from new suppliers possible. Germany Planning To build two LNG terminals to secure suppliers other than Russia, says Liimatta.

This is Wilhelmshaven, one of the two cities in which Germany will build receiving terminals for liquefied natural gas (LNG).

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take the gas fist

Norway will likely be able to supply more gas to Europe in 2022, after giving Equinor and its partners the opportunity to defer some maintenance and increase production at the Oseberg, Troll and Heidrun fields.

Sund notes that more Norwegian gas destined for Europe would also be able to help Norwegian consumers.

– I don’t think many people have realized that we can really do something about electricity prices by exporting more gas to Europe, she says.

– Now you work with biogas, can Norway extract something there?

Norway can extract 10 TWh of energy in the form of biogas for heavy transport and ships, ten times the current production, by using resources such as food waste and fish waste. But unfortunately, there is little willingness to invest in this, says Sund.

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