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Statoil to merge gas trading with liquids business

02.18.2014  | 

The Norwegian company plans to combine its gas-trading operations with a liquids division that buys and sells crude, condensate, refined products and gas liquids. The move would be effective May 1.

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By MIKAEL HOLTER and ANNA SHIRYAEVSKAYA
Bloomberg

Statoil, Europe’s second-largest natural-gas supplier, will merge its gas- and oil-trading units as differences in buying and selling the two commodities fade and competition increases.

The Norwegian company plans to combine its gas-trading operations with a liquids division that buys and sells crude, condensate, refined products and gas liquids. The move would be effective May 1, Eldar Saetre, Statoil’s senior vice president for marketing, processing and renewable energy, said in an interview.

“Gas markets have gradually changed in Europe, from being based on long-term contracts and oil-indexed price formulas to being a more liquid and fully traded market, such as crude oil,” Saetre said. “There’s tougher competition and even more players in our markets. That means I see the need to take out cost synergies and improve efficiency.”

Producers such as Statoil are adapting to the demands of European utilities including RWE, which want to undermine the tradition of linking gas-supply deals to oil prices, a 40-year-old system set up before European gas markets for immediate delivery developed. The practice has led to losses for utilities because gas has become cheaper and the oil price has climbed.

Less than half of wholesale gas in Europe is sold under oil-linked contracts, compared with almost 100% before the 2008 financial crisis and a push by European Union regulators to liberalize continental markets, according to Thierry Bros, an analyst at Societe Generale.

Trade Increase

Global gas trade will jump 30% in the seven years through 2018, led by soaring Australian exports and boosted by North American liquefied natural gas (LNG) shipments at the end of the period, according to the International Energy Agency. That will raise pressure on exporters to revise the link between long-term supply deals and oil as the gap between the two fuels persists.

Statoil produces about a third of Norway’s oil and gas, which it trades in addition to volumes from third parties such as the Norwegian state, making it the world’s third-largest net seller of crude, according to the company. It has trading offices in Stavanger, London, Singapore, Stamford and Calgary, with 360 employees for the oil market and 370 for gas.

The merger of the two units won’t have any direct consequences for staffing beyond existing cost-saving measures, Saetre said.

Marketed Volumes

Statoil marketed 95.8 billion cubic meters of gas in 2012, half of that being its own output. About 80% of the total went to Europe, representing 70% of all Norwegian gas exports. The same year, the Stavanger-based company sold 714 million bbl of crude and 171 million bbl of natural-gas liquids, less than 40% of which was its own production.

The 67% state-owned company, the biggest gas supplier to the UK and Europe’s largest after Russia’s Gazprom, has said more than 75% of its gas contracts will be linked to spot prices by 2015, up from 55% at the end of 2012. Statoil no longer has oil indexation in its German contracts and has largely eliminated it from deals in northwest Europe, though the liberalization of southern and eastern European markets hasn’t come as far, Saetre said.

GDF Suez, which owns Europe’s biggest gas network and is one of Statoil’s biggest clients, said last week long-term European contracts must become more flexible if they are to survive as a feature of supply security as cheap coal imports make gas-fired plants less competitive.

Adapting Contracts

“The market, and gas in general, would be well-served with a development toward hub-pricing,” Saetre said. “We have played an active role in this.”

Statoil is being “innovative,” increasingly offering contracts adapted to individual customers, according to the executive. These include pricing linked to the spread between electricity and gas prices for power producers, he said.

Still, the company is facing arbitration proceedings with Italy’s Eni, which claims it has been overbilled for years for its gas. Saetre wouldn’t confirm reports Eni is seeking $10 billion in compensation, reiterating Statoil hopes to negotiate a deal before the case reaches an arbitration tribunal.

Germany’s RWE last year got money back from Gazprom after pushing for a better deal as gas spot prices slumped lower than the long-term contract, the first time the Moscow-based producer has been forced to adjust its deals by a court ruling.

Oil Benchmarks

Statoil, together with Royal Dutch Shell and BP, is also under scrutiny from US and EU authorities on suspicion of manipulating oil benchmarks published by Platts. Statoil has no plans to withdraw from the Platts pricing system, and declined to comment on details of the probes.

“We don’t know why this happened and why we were included in this investigation,” Saetre said. “We have yet to get any good explanation.”

In addition to the merged marketing-and-trading unit for oil and gas, Statoil’s marketing, processing and renewable- energy division will from May 1 include individual departments for renewables, operations and asset management, separating ownership of installations such as refineries from day-to-day work.

Statoil has sold assets for more than $18 billion since 2009 to afford higher dividends just as rising costs cut into profit. The company has signaled that trend would continue, even as it scaled back investment plans for the next three years by 8% earlier this month.

“To have an even more active management of our portfolio is a part of” the MPR restructuring, Saetre said. “To consider at all times whether we have the right assets is a part of our strategy.”



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