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Norway gas pipeline plan hit by Yara pullout

  Norway’s plans to build a gas pipeline to bring North Sea gas to Scandinavian industrial sites and possibly on to Poland took another hit on Tuesday when a key client said it was about to pull out of the project.

Skanled, seen as the last chance for Russia-dependent Eastern European states to secure gas supplies directly from Norway, has been struggling to find enough buyers as the global economic crisis hits demand in Norway, Sweden and Denmark.

Fertilizer group Yara International said it would probably drop plans to take about half a billion cubic meters (bcm) of gas per year from Skanled because of high prices. “We are about to drop out of the project,” Yara’s spokeswoman Bente Slaatten told Reuters. “We can buy gas in Europe and take it by ship to (Yara’s facilities in the southern Norwegian city of) Porsgrunn, and it’s still a lot cheaper.”

StatoilHydro is due to supply gas to Skanled, which aims to pump some 6 bcm per year from the North Sea gas hub in Kårsto to sites in southern Norway, western Sweden, Denmark and possibly beyond the Baltic Sea to Poland.

StatoilHydro declined to comment specifically on its talks with Yara, saying Skanled needed to be commercially viable. But for this to happen, more gas buyers are needed, according to Skanled project coordinator Gassco.

A number of prospective Skanled gas clients have in past months grown skeptical over investment outlays for additional energy supplies at a time their markets are shrinking.

“For the project to go ahead the owners have to be comfortable that there is a business case, with the right amount of buyers. And that remains to be seen,” Gassco vice president Thor Otto Lohne told Reuters. A final investment decision on Skanled is due later in 2009, said Gassco, the North Sea gas pipeline system’s operator.

Norway has said Skanled would probably be the last big new pipeline project to Europe in the foreseeable future and last month state-owned oil and gas group Petoro has taken a strategic stake in the project to help with the financing.

BEYOND DENMARK

The link could also help diversify energy supplies to Eastern Europe, whose imports were hit early this year by another row between supplier Russia and transit state Ukraine.

Effectively expanding Skanled gas, work is under way to boost capacity in Danish gas transit system. An interconnection to Poland would also be needed if buyers were found in the East.

Another option would be to pump the gas to Northern Germany from Denmark. This idea gained more footing on Tuesday when Dutch gas transport group Gasunie joined the Skanled consortium.

“Skanled’s potential to enhance the diversity of supply in the North European region made us decide to join ... in this phase,” Gasunie CEO Marcel Kramer said in a statement.

Gasunie has a strong position in northern Germany and in Holland, with connections to Norwegian and Russian supplies as well as markets in Germany, Britain and Belgium.

Gasunie replaces Swedegas and, in part, Gøteborg Energi in the Skanled project consortium of eight companies including German giant E.ON, Polish gas group PGNiG, Norwegian utility Skagerak Energi, Denmark’s Energinet.dk and German VNG. Petoro, which manages the Norwegian government’s direct states in oil and gas ventures on the Norwegian shelf, struck a deal with small Norwegian utilities to acquire its stake in the project.

Gassco has said Skanled’s development hinged on, among other factors, investment by crisis-hit British chemicals group Ineos, the owner of a petrochemicals business in southern Norway earmarked to use some of the gas. (Reuters)