Norway's Arctic gas may see demand in Europe after 2020-IEA

Fri Oct 26, 2012 4:25pm BST

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* Falling UK gas reserves, reduced nuclear power to create new gas demand

* U.S. LNG imports, Russia gas prices a risk to Arctic gas

OSLO Oct 26 (Reuters) - A rise in gas demand for power generation in Europe after 2020 may provide a case to extract gas from Norway's Arctic region, which is so far considered too remote and expensive to compete in the market, an IEA official said on Friday.

Norway plans to award oil and gas exploration drilling permits in up to 86 blocks next year, mostly in the Arctic region where exploration is booming after recent large discoveries.

While the IEA predicts "five tough years in Europe" for gas, in the long-term the demand is expected to rise, providing room for imports from Norway's Arctic regions, Laszlo Varro, head of the IEA's gas, coal and power markets division, told Reuters.

Developing offshore gas fields from first exploration to building the pipeline or liquefied natural gas (LNG) infrastructure to bring the gas to customers requires large and long-term investments.

"There is certainly room for new gas imports to Europe around 2020," he said. "But it will also take time to develop the Arctic gas," he added.

Because of diminishing British gas reserves and as a result of nuclear decommissionings across the continent, Europe will need more gas to generate power after 2020, Varro said.

But Varro said that the success of Norway's Arctic gas exports would heavily depend on the amount of gas the U.S. will begin to export to Europe in form of liquefied natural gas (LNG) from 2015, and how Russian gas pricing develops in future.

"If Russia decides to sell bigger volumes to Europe at lower prices, they certainly have a capability to do so," he added.

Norway's Arctic has become increasingly attractive after several major discoveries in the region, and a landmark deal with Russia settling a decades-long border dispute.

But Norway's state-owned oil and gas company Statoil has recently dropped plans to expand its Snoehvit natural gas field in the Arctic due to insufficient reserves. (Reporting by Nerijus Adomaitis; editing by Henning Gloystein)