Norway's Equinor signs huge long-term gas supply deal with Germany's SEFE

Norway's state-controlled Equinor said Dec. 19 it had agreed to supply Germany's SEFE with 111 TWh/year (10 Bcm/year) of gas starting from Jan. 1, 2024, until 2034, making it one of Equinor's biggest ever export contracts.

The two sides also agreed an option to extend the supply deal for a further five years, with total volumes across the period of 319 TWh -- or around 6 Bcm/year.

The huge supply deal reflects a growing trend in Europe for securing new long-term gas purchase deals on the back of increased concerns over energy security.

Equinor CEO Anders Opedal said the supply deal with SEFE was one the largest ever made by the Norwegian company. "This is a response to Europe's need for long-term, reliable supply of energy," Opedal said.

The terms of the new supply deal are for delivery of gas "reflecting market prices", Equinor said, adding that the gas would be delivered to Trading Hub Europe in Germany, the TTF hub in the Netherlands and the NBP in the UK.

European gas prices are currently well below the record levels reached in summer 2022, but are still relatively high.

Platts, part of S&P Global Commodity Insights, assessed the benchmark Dutch TTF month-ahead price on Dec. 18 at Eur35.39/MWh.

The annual volumes agreed are the equivalent to around one third of German industrial demand.

"Equinor and Germany have enjoyed a strong energy partnership ever since the start of Norwegian gas exports in 1977," Opedal said.

"The total volumes we have agreed make this one of the largest agreements we have made as a company, and the supplies will contribute to energy security for Germany and Europe," he said.

Supply security

SEFE is a German state-owned gas-focused buyer and supplier, which was formerly a unit of Russia's Gazprom before it was nationalized by the German government after Moscow's invasion of Ukraine.

Germany was hit hard in 2022 as Russian deliveries were gradually curtailed through the year, culminating in the suspension of supplies via Nord Stream at the end of August last year.

A Netherlands-based trader said the Equinor-SEFE deal was a "win-win" for both Norway and Germany, and for Europe in general.

"[The Norwegians] wants to invest in their infrastructure and to secure as much cash flow as possible for their investments, while Germany is scrambling to replace all the lost Russian supplies," the trader said.

The trader added that it was a way to secure price and avoid future volatility.

Also reacting to the deal, a Switzerland-based trader said it signaled a return to supply stability. "It is going to ripple like dominoes and re-adjust cross-border pipeline flows for sure," the trader said.

Hydrogen intent

The companies also signed Dec. 19 a non-binding letter of intent with the intention that SEFE would become a long-term off-taker of giga-scale, low-carbon hydrogen supplies from Equinor starting in 2029 and continuing toward 2060.

"By signing the agreements for gas and hydrogen supply, we have teamed up with a strong European supplier that brings us a big step closer to our common goal of decarbonizing the energy sector while at the same time providing energy security," SEFE CEO Egbert Laege said.

"The procurement of gas from the Norwegian Continental Shelf ensures the sustainable and future-proof supply for European and, in particular, German customers in the household and industrial sectors," Laege said.

A key element in the potential collaboration on hydrogen is that SEFE could be a long-term off-taker of low-carbon hydrogen from projects that Equinor is planning on the continent and in Norway.

"The clear ambition is to supply low-carbon hydrogen to SEFE at industrial scale, starting from 5 TWh/year from 2029 and ramping stepwise up to 40 TWh/year from 2050 toward 2060," Equinor said.

The 5 TWh/year of hydrogen equates to around 150,000 mt/year, while the 40 TWh/year of hydrogen from 2050 would be around 1.2 million mt/year.

The EU is set to be a major hydrogen importer to meet its projected demand starting from 2030.

It is targeting 10 million mt/year of domestic renewable hydrogen production in addition to 10 million mt/year of imports, with much of the production expected to go to the refining and fertilizer sectors.

The EU has also set a target for at least 1% of energy consumption in the transport sector to come from renewable hydrogen, as well as a 42% share for renewable hydrogen used in industry.

Blue hydrogen, produced by reforming methane and capturing associated CO2 emissions, is currently projected to be cheaper than green hydrogen, made through renewables-powered water electrolysis, though green hydrogen costs are projected to fall sharply.

Platts assessed the cost of producing renewable hydrogen via alkaline electrolysis in Europe at Eur5.98/kg ($6.54/kg) Dec. 18 (Netherlands, including capex), based on month-ahead power prices, while blue hydrogen production (including carbon, CCS and capex) was Eur2.97/kg.