Norway and the EU enter gas price stand-off as Brussels tries to lower prices

The EU and hydrocarbon-rich Norway have started negotiations as Brussels seeks to pay less for gas imports amid sky-high prices, soaring inflation and mandatory energy consumption reduction measures, EU and Norwegian officials told The National.

But analysts say that European Commission President Ursula von der Leyen’s appeal last week to lower prices “in a reasonable manner” is at risk of falling on deaf ears both in Norway and in other gas-producing countries, potentially further cutting the continent off from important energy supplies.

A joint Norwegian-EU task force announced on Wednesday by Ms von der Leyen has started work, with its main objective being “to contribute to good decisions that can help alleviate the effects of the crisis in the European energy market”, Tale Benedikte Jordbakke, Norwegian state secretary of the Office of the Prime Minister, told The National.

State Secretary Elisabeth Saether of Norway’s Ministry of Petroleum and Energy separately said that “it is necessary to find solutions and we want to be a constructive partner in finding those solutions”.

An EU official said that the two teams are “working to set out a framework for these discussions” and will talk to government and private sector interlocutors about how to “deliver the best results for the European Union and Norway, in both the short and medium term”.

Ms Jordbakke said that the Norwegian team is being led by Norway's ambassador to the EU, Rolf Einar Fife, and includes members of the Ministry of Finance, the Ministry of Petroleum, the Ministry of Foreign Affairs and the Ministry of Trade, Industry and Fisheries. Other experts may join if necessary.

A trusted partner

The EU has been at pains to paint Norway as a reliable and trusted partner, unlike Russia, which cut gas exports indefinitely to Europe through the Nord Stream 1 pipeline.

European officials accuse Moscow of weaponising its gas exports following European sanctions and military support of Ukraine. Norway has since supplanted Russia as Europe’s largest gas supplier.

Yet shifting to new gas suppliers is not enough for the EU, which is scrambling to reduce demand before winter and aims to raise €140 billion in windfall taxes on energy companies.

European politicians fear social unrest as households worry about being unable to heat their homes sufficiently. The Belgian region of Wallonia on Tuesday became the latest to enact measures to reduce energy use, turning lights off on motorways at night.

Thousands rallied on Wednesday in the Belgian capital of Brussels to draw attention to the sharp rise in the cost of living.

As public anger mounts, the idea of capping gas prices has gained traction. But EU member states are divided over the idea and Ms von der Leyen recently back-pedalled on a proposal to cap Russian gas imports.

Michael Bloss, a German member of the Greens group in the European Parliament, told The National that Europe should negotiate prices “that have more to do with reality than is currently the case”.

Mr Bloss said that he did not support capping prices and favoured negotiations.

“If the European Union does not act like hundreds of different small entities that are trying to seek gas on the world market and acts instead as one player, I think it would bring down prices quite a lot,” he said.

Norway remains firmly against the idea of capping prices but says it is open to dialogue.

“We are sceptical to a maximum price of gas, primarily because it could strengthen the fundamental underlying problem — that there is a shortage of gas in Europe,” said Ms Jordbakke.

The prime minister’s state secretary declined to explain why a cap would cause shortages, but the Norwegian government’s opinion is widely shared among analysts.

'Asia is still hungry'

Competition between Asia and Europe for liquefied gas spot cargos is one of the key reasons behind the spike in prices, said Toby Copson, global head of trading and advisory at Trident LNG, a China-based gas trading company.

Freight shortages have caused prices to rise further.

“The market is tight overall. There’s a perfect storm occurring in Europe. With the Ukraine crisis, they cannot get enough,” Mr Copson told The National.

“You have to bear in mind that Asia is still hungry. Japan, Korea and Taiwan are still trying to inject storage capacity for peak heating demand through winter. So Europe in effect is competing with Asia for these cargoes.

“Europe is really at a junction where they potentially could price themselves out of the market and further the crisis they’re currently in.”

In Norway, one option being considered is showing solidarity by redistributing to Europe or Ukraine the excess profits made by gas companies, which are taxed at a rate of almost 90 per cent, said Harald Magnus Andreassen, a Norwegian economist at Sparebank 1 Markets.

But such a move would probably be highly unpopular in Norway, where such taxes go straight to the country’s $1.2 trillion sovereign wealth fund. Parliament would have to agree to modify its annual spending limit of no more than 3 per cent of the value of the fund.

So far, no major political party has supported the idea.

“Outside from the Green party, politicians have said nothing about it. The whole situation is so unprecedented. They need time to figure it out,” said Mr Andreassen.

Meanwhile, the country is also suffering from an unprecedented rise in electricity prices.

Cautious solidarity

Norway's parliament is waiting for the government to propose its 2023 budget on October 6, a representative for the Labour party, which controls the biggest parliamentary bloc, told The National.

Norway's finance minister said in a statement on Sunday that the government will not use its sovereign wealth fund to pay for soaring fiscal expenses despite a gap of tens of billions of crowns. Costs rose faster this year than the government's revenue from taxes and other sources of income outside the oil industry, the statement said.

Mr Andreassen said Europe has only one solution to avoid power cuts this winter: reducing consumption.

“We have to close down factories and bring down the temperature because there just isn’t enough energy,” he said.

Norway, for its part, might be open to a significant contribution to Ukraine’s reconstruction.

“Norway will no doubt pay a much larger share of the bill because we earned some war profits — if you want to use that expression,” said Mr Andreassen.

The Norwegian prime minister’s office told The National that the country “will be ready to shoulder its share in this effort”.

Ms Jordbakke added that Norway plans to provide €200 million “to enable Ukrainians to purchase natural gas this autumn and winter” and “recently announced an additional support of €1 billion to Ukraine for 2022-2023".