In the gas disaster there was one vivid spot. Norway — democratic, pleasant, dependable Norway — has stepped up to assist hold the lights on in Europe, maximising manufacturing even at the expense of its personal oil output to attempt to substitute each molecule it may well of Russian provide.
But as the price of gas has continued to soar, greater than doubling since Russia began brazenly choking exports in June, there are quiet rumblings in the trade. They counsel that it’s time to ask Norway to do extra, even one thing that may as soon as have appeared unthinkable: Norway ought to agree to cut the price at which it sells its gas.
Before the howls of protest from Oslo and complaints from free-market purists, it’s value saying that is nowhere close to a proper proposal. But that these views are even being aired privately by hardened oil and gas executives outdoors Norway suggests they’re value exploring.
The argument is as follows: Europe, whether or not it desires to admit it or not, is embroiled in an financial battle consequently of Russia’s invasion of Ukraine.
The biggest menace to Europe’s assist for Kyiv, nicely understood by Vladimir Putin, is that the vitality disaster turns into an financial disaster and western voters flip inward. Gas costs are now not simply excessive however quickly changing into financial weapons.
However good the gas windfall Norway is reaping appears at this time — and at the equal of virtually $400 a barrel of oil it’s mind-bogglingly enormous — it isn’t in the nation’s strategic pursuits to see its neighbours fall right into a deep recession or to have an emboldened Russia pushing up towards the EU’s borders.
The onerous numbers are enlightening. The overwhelming majority of gas Norway provides goes by pipeline to Europe, making up a few quarter of the continent’s provides. For the UK, they account for an excellent greater 40 per cent of provides.
The Norwegian authorities forecast in May that its revenues from oil and gas would already method €100bn this 12 months. In a rustic of 5.4mn individuals that’s about €18,000 per particular person, or greater than complete UK authorities public spending per capita in 2020/21.
Gas costs have doubled since then and now trade at greater than ten occasions the stage they averaged over the earlier decade. Norway clearly has important fiscal headroom. Revenues from oil and gas had been lower than €30bn final 12 months.
If Oslo was to agree to cap the price at one thing like the equal of $150-$200 a barrel of oil — greater than Norway earned on common in the first half of this 12 months, when state-backed vitality champion Equinor loved document income — that will nonetheless be painful however manageable for European economies.
Long-term traders in the nation’s vitality sector, together with the authorities, would nonetheless be rewarded. Aslak Berg, an economist who has labored for the Norwegian authorities and the European Free Trade Association, mentioned that whereas any discount in the price is perhaps politically troublesome to swallow, Oslo had an curiosity in contributing to a steady European economic system and to supporting Ukraine.
“An option that could make sense for both parties is to commit to long-term contracts at prices significantly lower than today’s spot price, but well above the historical average,” he mentioned.
Such an answer wouldn’t be a panacea. European gas market costs would most likely stay excessive so as to entice the essential cargoes of liquefied pure gas away from Asia. There are dangers to interfering with regular market alerts. But it could, virtually undoubtedly, assist to convey down the invoice for bailing out households and trade this winter round Europe.
Norway can also be extra uncovered to swings in the international economic system — largely pushed by unstable vitality costs this 12 months — than is perhaps instantly obvious. Its $1.2tn sovereign wealth fund, which invests the proceeds from many years of oil and gas manufacturing, misplaced 14.4 per cent, or $174bn, in the first half of this 12 months — greater than the authorities stands to make from document oil and gas costs.
Norway can also be conscious of the menace to long-term gas demand from this disaster. Its need to construct a future vitality economic system primarily based on renewables like offshore wind and ‘blue’ hydrogen depends on shut co-operation with its neighbours too. High-level executives in Norway communicate candidly of the risks of being seen to pursue a “Norway first” method.
It is essential for Europe to keep away from falling into the useful resource nationalism entice, which might play into the fingers of Putin. No one ought to counsel that Norway be handled as a profiteer or its contribution to European vitality safety forgotten. But it’s value no less than debating if something will be performed to convey down costs.
Turning up the faucets to full capability is already appreciated. Doing it at a price that helps soothe the ache for European economies is perhaps in Norway’s pursuits too.
david.sheppard@ft.com
Twitter: @oilsheppard