Norway has warned that gas exports to the UK that also supply mainland Europe could be shut off this weekend if a workers’ strike escalates, with up to 60 per cent of the Scandinavian country’s supplies under threat from industrial action.
Equinor, Norway’s state-backed energy company, has already shut down three oil and gasfields since strikes began on Monday evening over pay claims seeking to compensate for rising inflation, in a move that helped propel European gas prices to their highest level in four months.
Norway’s Gassco, the state-owned pipeline operator, told the Financial Times on Tuesday that “in a worst-case scenario, deliveries to the UK could stop totally”, with striking workers planning to extend the shutdowns on Saturday to a key distribution hub that supplies the UK.
Norway is the UK’s largest source of gas, according to industry body Offshore Energies UK, overtaking domestic production for the first time last year to meet 42 per cent of all UK demand. Norway also supplies about 25 per cent of total European gas.
The threat to Norwegian supplies comes as European countries are already rushing to fill storage ahead of the winter. Europe has turned to Norway, traditionally its second-biggest gas supplier behind Russia, to plug the gap left after Moscow cut flows following its invasion of Ukraine.
The UK has become an important conduit for moving supplies to Europe, with its export pipelines to Belgium and the Netherlands running at speed to send excess imports of liquefied natural gas and Norwegian supplies into continental storage before the colder months descend.
The supply drought has sent European gas prices surging, contributing to a sharp rise in costs for businesses and households. Benchmark European gas prices rose 6 per cent on Tuesday to €167 per megawatt hour, the highest level since early March and five times the level of a year ago, before easing slightly. UK contracts for next-day delivery jumped 16 per cent to 265p a therm.
The higher prices rippled into the foreign exchange market, with the euro sinking to its lowest level in two decades over concerns about how spiralling energy costs would affect the eurozone economy.
The strikes that began on Monday are set to expand to three more sites by Tuesday evening, disrupting around 13 per cent of Norway’s natural gas exports.
Norway’s Lederne trade union is threatening to escalate strikes on Saturday that would force the closure or reduction of output at 14 sites and result in a 56 per cent drop in Norwegian gas exports if no resolution is found.
Gassco said Sleipner, a key distribution hub on the gas pipeline to Easington on England’s east coast, would be forced to close under the weekend strike plans. There would probably be a lack of gas to pump through an alternative pipeline to St Fergus in Scotland, Gassco added. The UK’s National Grid said its own “provisional assessment” suggested some gas could still arrive at the terminal.
The troubles over Norwegian supplies come as traders turn increasingly pessimistic on Moscow resuming the flow of gas through Nord Stream 1, the pipeline between north-western Russia and Germany, at full-tilt once it comes back from maintenance due to start next week for 10 days.
State-backed Gazprom last month cut capacity by 60 per cent on the line, blaming technical issues linked to western sanctions, but has declined to utilise alternative pipeline routes to maintain supplies. Many European officials have accused Russia of weaponising gas supplies and warned that the continent needs to brace itself for further cuts.
Tom Marzec-Manser, an analyst at consultancy ICIS, said that while the UK was likely to be able to cope in the short term without Norwegian supplies, the timing would harm European efforts at managing flows.
“UK has got lots of LNG imports coming in so should be fine, even if it creates some tightness in the market,” said Marzec-Manser.
“But for Europe as a whole, this couldn’t really be happening at a worse time, outside the depths of winter, as we desperately need to fill storage ahead of the colder months,” he added.
The UK is expected to receive four cargoes of LNG between July 10 and July 19.
National Grid said it was confident the UK would have enough gas for the duration of the Norwegian strike as gas demand was relatively low in summer. Traders could also choose to send less gas to continental Europe if supply tightened, it added.
The UK government’s business department said there were “no issues with gas supply”, highlighting the country’s domestic production and LNG import capacity, the second largest in Europe. But one official conceded that ministers were bracing for the impact of a further jump in wholesale prices.
The UK’s Energy Intensive Users Group is due to meet Kwasi Kwarteng, business secretary, on Wednesday and has indicated it is looking for greater clarity on whether industry could face gas rationing this winter.
Countries in mainland Europe have already urged households and industry to reduce their usage in case Russia cuts off gas exports to the continent, but the UK government has so far played down concerns.