Gassled - judgment from Oslo District Court

-          The Ministry of Petroleum and Energy is satisfied that the claims against the Norwegian State have been rejected by the Oslo District Court, states Ole Berthelsen, Head of Communications.

Background

Norway’s petroleum resources are vested in the State, which has the exclusive right of resource management. The primary aim of Norwegian petroleum policy is to generate the greatest possible value from the petroleum resources by facilitating profitable oil and gas production with a long-term perspective. This objective can only be achieved by exploiting all profitable oil and gas resources on the Continental Shelf.

A prerequisite for generating as much value as possible from Norway’s petroleum resources is that the applicable framework gives oil companies engaged in day-to-day exploration, development and production a vested interest in making decisions that maximise value creation on the continental shelf. Accordingly, ensuring that the framework has this effect is a priority for the Ministry. This includes ensuring that economies of scale relating to transport infrastructure are exploited and that unnecessarily high production costs are avoided.

The lawsuit heard by Oslo District Court related to tariffs (the price) for gas transportation through Gassled, and concerned fundamental principles for the State’s management of Norway’s petroleum resources.

Right from the start of petroleum activity on the Norwegian Continental Shelf, a key aspect of resource management has been to promote rational development and use of the gas transport system. Regulation of the tariffs charged for using the Norwegian gas transport system is a primary instruments in this regard. From the establishment of the first gas transport system, the State has thus regulated the return on investments in gas transportation infrastructure.

Low transport tariffs mean lower costs for companies facing exploration, development and operational decisions. Lower costs make more resources viable in terms of profitable exploration, development and production. Low tariffs thus facilitate optimal management of Norway’s petroleum resources.

To stimulate companies to develop all profitable resources, it has been an explicit aim since the mid-1980s that profits shall be generated in the fields and not from transportation, and that investments in transportation infrastructure shall yield a real pre-tax return of around 7 per cent on total capital. Accordingly, since the start-up of the Norwegian petroleum industry, the State has regulated the return on investments in transport infrastructure. Such regulation also ensures that a reasonable profit is made on transport infrastructure investments, and thus that socioeconomically profitable infrastructure is established and maintained. Since 2003, the tariffs have been set in dedicated tariff regulations.

More about Gassled

Gassled is a joint venture which owns the majority of the gas transport system on the Norwegian continental shelf. The system comprises pipelines, platforms, onshore processing facilities and receiving terminals abroad. The system is used by everyone who needs pipeline transport. Gassled was established in 2003 through a merger of several separate transport systems.

The price (tariff) charged to gas producers by Gassled’s owners is set in special tariff regulations since 2003.

After establishing that tariff revenues from concluded transport agreements were generating a return at least equal to the stipulated return on investments in most parts of Gassled, the Ministry of Petroleum and Energy adopted amendments to the tariff regulations in June 2013. New, lower tariffs were set for new transport agreements relating to these parts of Gassled for the period from 1 October 2016 onwards. The amendment does not affect tariffs in previously concluded agreements, which were maintained. The new tariffs will continue to generate a reasonable profit in Gassled.

The main objective of the new tariffs is to facilitate further exploration, development and production of petroleum resources throughout the Norwegian Continental Shelf. The new tariffs are in line with established regulatory principles and longstanding resource management practice.

Four of the companies participating in Gassled – Njord Gas Infrastructure AS, Solveig Gas Norway AS, Silex Gas Norway AS and Infragas Norge AS – brought proceedings against the State, represented by the Ministry of Petroleum and Energy, claiming an invalidity declaration in respect of the amending regulations and that the State is liable in damages.