Norway has become the largest supplier of natural gas to the European Union after the collapse of Russian deliveries and is earning not just praise for stepping up but also critique for not cutting its neighbors a better deal.

The Nordic nation is the world's eighth-largest gas producer and has increased its deliveries to the EU since Russia's invasion of Ukraine. Russian gas now accounts for around 7% of EU gas imports, down from 40% before the war, with most of the gap made up by liquefied natural gas imports from the U.S. and elsewhere. Norway's share of EU imports is largely unchanged at about 25%.

European Commission officials have voiced appreciation for Norway's reliable gas deliveries since the war, and have also been negotiating with the Norwegian government for months in the hope of capping gas prices or agreeing a price corridor. However, such efforts have been fruitless so far.

"The abnormally high level of energy prices is neither politically nor economically sustainable and constitute a challenge for our continent," Commission President Ursula von der Leyen and Norwegian Prime Minister Jonas Gahr Støre said in a joint statement in early October. "We share deep concerns about the repercussions of these prices, and a common determination that prices should be significantly reduced."

Yet, EU policymakers have been timid in their efforts to rein in gas prices and in their negotiations with Norway, according to Kristian Ruby, secretary-general of utility trade group Eurelectric. Ruby sees Norwegian gas as an important determinant of energy costs for consumers and industries in the longer term.

"Once we start talking about 2023, 2024, that conversation with Norway should start," Ruby said in an interview. "Do you really want to rake in the last penny of poor Europeans here?"

Norwegian gas shipments are mostly benchmarked against the Title Transfer Facility, or TTF, which includes pipeline gas. This benchmark surged 400% to €350/MWh in August compared to the start of the year and has since receded to around €100/MWh, still substantially above pre-war levels. EU lawmakers have pledged to rein in volatility on the index, which they say no longer reflects the realities of a gas market that is now more LNG-based.

EU buyers paid over €31 billion for natural gas imports from Norway in the third quarter, double the amount spent in the same period last year, according to an S&P Global Commodity Insights analysis of Eurostat data.

Norway's largest gas company, Equinor ASA, booked record profits of $6.62 billion in the third quarter of this year on the back of the inflated market prices.

"We're talking about money changing hands in the order of percentage points of EU GDP," Ruby said about EU gas payments this year to international suppliers including Norway. "Is this fair? Is this meaningful? It is morally and also politically unsustainable for Norway to insist on dodging that question."

Norway balks at price cap

Norway has continued to argue against gas price caps throughout the energy crisis.

Energy prices are high because of a shortfall of gas and power, according to Andreas Bjelland Eriksen, state secretary in Norway's Ministry of Petroleum and Energy. Norway's main role is to export as much gas as possible, the minister said in an emailed statement.

Norway estimates that total deliveries from its fields this year will reach a record 122 billion cubic meters. Production is up 8% from 2021, Bjelland Eriksen said, bringing close to 100 TWh of extra energy to the European market.

"Norway does not sell gas. It is the private companies producing gas, not the state, that sell the gas produced in Norwegian fields. These companies sell their gas in the market on commercial terms, as part of the European gas market," Bjelland Eriksen said.

Executives at Equinor, which is 67% owned by the Norwegian state, see a price cap as a distant prospect. "It's fair to say that anything discussed so far has not been firmed up," said Torgrim Reitan, executive vice president and CFO at Equinor, during the company's third-quarter earnings call Oct. 28.

The executive urged caution about interventions into market mechanisms. "Market prices is the best way to manage demand and supply," Reitan said.

"The energy situation in Europe is very challenging and we understand the concerns and challenges that the EU and individual governments are facing," an Equinor spokesperson added, reiterating that the company does not believe a price cap is the answer.

Following its next meeting with EU energy ministers, the European Commission will propose a cap on gas prices, Reuters quoted EU Energy Commissioner Kadri Simson as saying Nov. 16, though it is so far unclear whether member states will be able to agree on a cap given continued concerns over security of supply. Asked on Nov. 16 about ongoing negotiations with Norway around a price cap, the commission did not wish to comment.

"We do not close the door on any measure that can bring down prices while maintaining security of supply," Norway's Bjelland Eriksen said. "However, we have argued against introducing a price cap, because it could shift energy flows away from Europe and increase consumption."

Both Norway and the EU have a common interest in stable and well-functioning energy markets, Bjelland Eriksen said, adding that Norway is in constructive dialogue with the commission on this.

The picture painted for Europe by Eirik Wærness, Equinor's chief economist, is bleak even without gas price caps. Europe can manage without Russian gas starting two to three years from today, Wærness said at a conference in October.

In the interim, cash-strapped Europeans will manage in part by rationing energy, Wærness said. Parts of Europe's industrial hubs could also see "uncontrolled deindustrialization" as high gas prices force fertilizer, steel and aluminum facilities to shut down, paving the way to recession, the economist added.

Reliable supplier

Industrial decline is of major concern to Germany, Europe's largest economy. In Berlin, decision-makers hope for strength in numbers when it comes to negotiations with gas suppliers.

"Norway is an important and reliable supplier of natural gas for us," a spokesperson for Germany's Ministry for Economic Affairs and Climate Protection said. "The flows from Norway to Germany are currently at a maximum of what is technically possible."

To avoid increasing prices, German Economic Affairs Minister Robert Habeck is working at an EU level toward joint purchasing between member states, the ministry said in an email.

So far, member states are not outbidding each other on Norwegian gas to any major extent, according to Lauren Broadfield, senior gas analyst at Energy Aspects.

While producers are "maximizing output as much as they can," there is only so much companies can do given export capacity is also limited by infrastructure, Broadfield said.

Most of the gas shipments to Europe are delivered via pipeline, giving Norway limited physical ability to divert gas elsewhere, the analyst added. Equinor owns one LNG terminal in Hammerfest, northwestern Norway, and the company said it has shipped 13 cargoes from there this year, all of which came to Europe.

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