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The relationship between the European Union and Norway in the context of energy supply

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The Russian attack on Ukraine in February 2022 had far-reaching implications not only for global and regional geopolitics but also for the European Union (EU).

In response to the aggression, the EU took decisive action by imposing economic sanctions on Russia, targeting sensitive areas of its economy. However, Russia retaliated by targeting one of the EU’s vulnerabilities – its dependence on Russian gas. By turning off the gas taps and raising prices, Russia aimed to pressure the EU into ending the sanctions. This move forced the EU to seek new supply partners for gas, leading to a significant shift in its energy policies.

Amidst the challenges caused by Russia’s actions, the EU decided to diversify its energy sources in order to reduce dependence on Russia. Over time, Norway emerged as one of the EU’s main suppliers, providing a reliable and strategic energy partnership.

In this article, Benes argues that even though Norway has become the EU’s largest gas supplier, the EU must be cautious about developing a new dependency. Diversifying the gas market should not lead to reliance on a single supplier, and the EU should actively seek multiple partners to avoid vulnerabilities and reduce dependence on any one country, including Norway.

(Zsanett Gréta Papp)

The relationship between the European Union and Norway in the context of energy supply

Dániel Bense

The European Union can produce around 17% of its gas. It must import a further 83% of its gas needs. Until the Russia-Ukraine war, Russia was the EU’s largest supplier of gas. In 2019, Russia accounted for more than 50% of the EU’s gas imports; in 2020, it still accounted for more than 40%, a proportion that has not changed in 2021. No wonder, then, that getting rid of this absurd dependence is a long and painful process.

The EU’s gas demand is huge, over 400 billion m3 per year. More than 31% of this huge consumption is for electricity and heat generation, 24% for households and more than 22% for European industry itself. Russia’s response to the sanctions against Russia was to shut off the gas taps, putting the gas supply of hundreds of millions of European citizens at risk, a threat that the European Union had to respond to by seeking new partners.

Norway was already an important European partner before the Russia-Ukraine war, accounting for more than 21% of the European Union’s gas imports in 2020 and 25% in 2021, making it the second-largest supplier to the European Union even before the war. It is no wonder that after the Russia-Ukraine war, Norway’s role in supplying gas to the EU increased significantly. In 2022, only 25.6% of the EU’s gas imports came from Russia and 25.9% from Norway. This makes Norway the largest supplier to the European Union in 2022.

The European Union’s dependence on Norwegian gas

On 23 June 2022, the European Union and Norway issued a declaration reaffirming their common energy cooperation. When the declaration was adopted, Norway was in a particularly good negotiating position. On the one hand, the European Union and Norway have a long history of cooperation and relations, and on the other hand, the European Union was sitting at the negotiating table with its hands tied. The declaration mentions at several points the growing role of Norway, the importance of its gas supplies and even the prospect of Norway becoming the EU’s largest gas supplier after 2030.

The two sides agreed that Norway will produce and export more gas to the EU. The importance of the situation is best demonstrated by the fact that European gas storage facilities were at less than 50% of their capacity at the time, and were aiming to reach 80% by the beginning of winter. Under the new agreement, the European market will receive 100 TWh of additional energy, bringing Norway’s gas exports to 122 bcm, but this is still not enough to replace Russia’s exports of 155 bcm.

The exposure of the European Union is shown by the fact that although Norway increased its gas exports by only 8%, the value of gas exports in 2022 increased by 300% compared to the previous year, so they are not selling significantly more, but gaining much more. Norway is looking to take advantage of the gas price spike and is taking advantage of it. Norway was already able to make a significant profit from falling gas prices in December 2021, before the Russian-Ukrainian war broke out. The increase in value in December 2021 was more than 500% compared to the previous year, which means that it was able to make more profit than Russia in relative terms.

Norway’s dependence on the European market

Norway’s energy production took off in 1971 when an oil field on a continental shelf discovered in 1969 started producing oil.

In 2021, oil and gas production accounted for 21% of Norway’s GDP and 51% of Norway’s exports. Norway has 10 gas pipelines directly connected to the European Union, including Germany, Belgium, France and recently Poland.

While the European Union is working to diversify its exposure to gas, Norway cannot do the same for its upstream markets. With 90% of Norwegian gas exports going to the UK and the EU. Norwegian gas export market structure is also highly distorted and therefore vulnerable. In addition, Norway is not able to produce and transport enough gas for the European Union. Norway will be able to profit significantly from gas exports as long as the EU continues to pay for them.

Norway has become the largest gas supplier to the European Union. However, this is creating a new kind of dependency that the EU must avoid. Diversification of the gas market should not mean that the EU becomes dependent on a new supplier, but that it becomes dependent on no one. If Norwegian gas dependence increases in the future, this will also increase the vulnerability of the European gas market. At the same time, Norway has an obvious interest in benefiting from EU exposure as long and as much as possible. The EU needs to take its diversification policy seriously and look for several new partners in addition to Norway to avoid new dependencies.

This article was made in cooperation House of European Affairs and Diplomacy – Szeged.

Bibliography:

Official website of the European Commission: https://ec.europa.eu/commission/presscorner/detail/hu/STATEMENT_22_3975

Official website of the European Council, Council of the European Union: https://www.consilium.europa.eu/en/infographics/eu-gas-supply/

Norvégia segíthet az EU-nak elszakadni az orosz gáztól. Official website of Világgazdaság: https://www.vg.hu/nemzetkozi-gazdasag/2022/06/norvegia-segithet-az-eu-nak-elszakadni-az-orosz-gaztol

Dillon Jaghory: Examining Norway’s Crucial Place in European Energy Security. Official website of Global X: https://www.globalxetfs.com/examining-norways-crucial-place-in-european-energy-security/

Herczeg Márk: Felavatták a norvég gázt Dánián át Lengyelországba szállító Baltic Pipe vezetéket. Official website of 444: https://444.hu/2022/09/27/felavattak-a-norveg-gazt-danian-at-lengyelorszagba-szallito-baltic-pipe-vezeteket

Jandó Zoltán: Európát nem mentik meg az oroszoktól, de rengeteget keresnek a gázon a norvégok. Official website of G7: https://g7.hu/vilag/20220817/europat-nem-mentik-meg-az-oroszoktol-de-rengeteget-keresnek-a-gazon-a-norvegok/

Lisa Jucca: Norway’s gas lifeline for Europe is the smart move. Official website of Reuters: https://www.reuters.com/breakingviews/norway-gas-lifeline-europe-is-smart-move-2022-09-09/

Tisóczi Roland: Norvégia kaszál a legnagyobbat az elszálló gázárakon. Official website ofVilággazdaság: https://www.vg.hu/nemzetkozi-gazdasag/2022/01/norvegia-kaszal-a-legnagyobbat-az-elszallo-gazarakon