Bloomberg News

Norway Unsympathetic to Gas Pipeline Investors Over Tariffs (1)

June 13, 2013

Norway’s oil minister said it would be difficult to abandon a plan to cut tariffs on its gas pipelines by as much as 90 percent, ignoring pleas from international investors to scale back the reductions from funds committing $5.6 billion to the network.

Western Europe’s largest gas exporter will announce a final decision by the end of this month, Oil and Energy Minister Ola Borten Moe said in an interview in Oslo yesterday.

“I think it’s very difficult to” envisage a compromise, the 37-year-old minister said. “If you are a regulator, it’s very difficult to be just a little bit of a regulator.”

Norway in January announced plans to cut tariffs paid by producers by almost 90 percent to make more finds profitable and to boost exploration and recovery rates. Investors in the pipelines, which include Canadian pension funds, a UBS AG (UBSN) infrastructure fund and a unit of Abu Dhabi’s sovereign fund, estimate the cut would lower returns to about 4 percent, below the projected minimum of 7 percent.

The lower returns for shipping gas through the 7,800-kilometer (4,850-mile) network will still be good enough for Norway to attract investment and develop oil and gas resources in the Barents Sea off its northern tip, Borten Moe said.

“If you have the commercial foundation, it will be unproblematic to raise enough capital and competence to build a pipeline to the Barents Sea,” he said. “Why shouldn’t it?”

Statoil to Exxon

Norway, which is trying to make up for declining North Sea oil and gas output by expanding northwards, has rattled investors in the last two years, unexpectedly deciding to wind down Eksportfinans ASA, a government-backed export lender, and then by proposing the Gassled network pipeline cuts. The government has since announced a surprise increase in taxes on energy producers, drawing criticism from companies, including Statoil, ConocoPhillips (COP:US) and Exxon Mobil Corp. (XOM:US)

“The changes that we’ve proposed in the Gassled tariffs are probably more important when it comes to unlocking marginal resources than the changes in the tax system,” Borten Moe said. “Our policy has always been that we’re going to take out the value at the resource and not in the infrastructure.”

Polarled, a 25 billion-krone ($4.3 billion) pipeline being built to connect Statoil ASA (STL)’s Aasta Hansteen gas field to Royal Dutch Shell Plc (RDSA)’s Nyhamna processing facility 480 kilometers away, will also go ahead even amid investor concerns on returns, Borten Moe said.

Super Profits

That pipeline, being funded by oil companies including Statoil, Total SA (FP) and Shell, may become part of “Gassled in the future, that’s a commercial decision,” the minister said. The owners of Gassled don’t have a monopoly on building new gas infrastructure in Norway, he said.

Gassled owners including Solveig Gas Norway AS and Njord Gas Infrastructure AS have threatened to turn their backs on future projects, including buying out the oil companies that are building Polarled, if the tariff cut is introduced.

“The point of departure is that it’s not going to be highly profitable to sit on the infrastructure,” Borten Moe said. “The value is created at the fields and that’s where we are going to take out the super profits.”

To contact the reporters on this story: Alastair Reed in Oslo on at areed12@bloomberg.net Matt Winkler in New York at mwinkler@bloomberg.net

To contact the editor responsible for this story: Jonas Bergman at jbergman@bloomberg.net


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